Collections > UNC Chapel Hill Undergraduate Honors Theses Collection > A Comprehensive Analysis of the Escalation of Commitment in Professional Basketball
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Traditional economic theory suggests that decision makers should not allow sunk costs to shape future actions. However, empirical studies have found a commensurate relationship between sunk costs and future expenditures even when expected marginal costs exceed expected marginal benefits, an idea referred to as the “escalation of commitment.” With large sunk costs annually incurred through player drafts, executives in the high-stakes business of professional sports may be particularly prone to this irrational behavior. This research specifically examines teams’ personnel decisions in the National Basketball Association (NBA) to determine the prevalence of escalation in the league. This study finds evidence of escalation that is lower in magnitude and shorter in duration than in previous studies. While a player’s draft position continued to affect his playing time, this effect was limited to the first two years. Furthermore, draft position among first round players played a minimal, if any, role in a team’s decision to retain a player. However, under the 1999 Collective Bargaining Agreement, being drafted in the first round significantly increased a player’s chances of retainment. No such effect was seen under the 2005 CBA.