Sunk or Dunk An Empirical Analysis of the

Sunk or Dunk? : An Empirical Analysis of the Effect of the Sunk Cost Fallacy in Professional Basketball Research: • • • By Hailey Di. Cicco Results: Hinton and Sun (2019) created a fixed effects model that held player performance constant while comparing salary to minutes • It was found that salary SHOULD have no effect on playing time if you ignore sunk costs • The author concluded that the sunk cost fallacy exists in the NBA even when the other factors that contribute to game time are considered Garland (1990) researched the idea of how sunk costs influence a person's decision to escalate commitment to an ongoing project • this could help explain why NBA teams fall victim to the sunk cost fallacy so often Arker and Blumer (1985) demonstrate the economic motivation behind sunk costs with the value function of prospect theory • • logwage variable found to be significant at the 99% level • Coefficient 1. 52 indicates … • Very interesting in context of our paper because this indicates a change in wage not explained by performance metrics rel_dreb and rel_oreb significant at the 90% level Position and teams were controlled for in the model, but there are many other factors that either are unmeasurable, or we were unable to control for them in this model The aim of this study was not to be able to give concrete policy recommendations but rather to investigate this phenomenon in professional sports Econometric testing: • • The model was tested for heteroskedasticity, serial correlation, specification error, and multicollinearity Using the Breusch-Pagan test, the Durbin-Watson test, and the Ramsey Rest test, and Variance Inflation Factors respectively • Did find heteroskedasticity, serial correlation • Evidence of multicollinearity with rel_astm, rel_tovm, and rel_ftm Generated coefficients and standard errors corrected for heteroskedasticity and serial correlation Fixed effects model and random effects models were generated • Hausman test determine fixed effects was a more consistent estimator Data: • Data comes from NBA. com/stats for the • performance metrics Salary data was pulled individually from basketballreference. com