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- Title
Performance Feedback Does Not Eliminate the Sunk-Cost Fallacy: Evidence From Professional Football.
- Authors
Keefer, Quinn
- Abstract
Empirical studies on the influence of sunk costs in high stakes decisions have come to mixed conclusions. As observational studies have primarily used professional sports labor markets, we analyze the effect of sunk costs, player compensation, on the labor utilization of defensive players in the National Football League (NFL). Our analysis has several advantages. First, we measure the direct impact of increased financial commitment. Second, we analyze the effect of sunk costs when firms have accurate and abundant performance feedback; therefore, our conclusions are not driven by uncertainty. Finally, we control for possible endogeneity by using the exogenous variation in compensation generated when players become eligible for free agency or change teams. Our results indicate sunk costs are significant determinants of player utilization. A 15 % increase in compensation has an equivalent effect on playing time as an increase of five to eleven solo tackles, one to two interceptions and two to five and a half sacks in the previous season for linebackers, defensive backs and defensive linemen respectively. Furthermore, the sunk-cost fallacy is persistent throughout the entire career of an average NFL player.
- Subjects
SUNK costs; LABOR market; NATIONAL Football League; FOOTBALL players; FREE agents (Sports); WAGES
- Publication
Journal of Labor Research, 2015, Vol 36, Issue 4, p409
- ISSN
0195-3613
- Publication type
Article
- DOI
10.1007/s12122-015-9215-y