Decision-Making Bias in the NBA Free Agency: The Case of the Playoffs
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2021
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Haverford College. Department of Economics
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Award
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eng
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Bi-College users only
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Abstract
This paper explores the impact of unexpected playoff performance on free agent contracts for NBA players. It also examines the rationality of NBA executives when making these hiring decisions, in order to determine whether they are weighing recent playoff performance correctly. Both contract data and extensive performance data for NBA players from 2013 to 2019 are used to answer these questions. There is evidence that unexpected playoff performance, specifically in regard to player scoring, rebounding, and win-shares accumulation, significantly impacts a player's future wages, with unexpectedly good performance being rewarded and unexpectedly bad performance being punished. Furthermore, it is shown that NBA general managers in charge of handing out these contracts are neither overvaluing nor undervaluing players' unexpected playoff performances. Thus, we find no evidence that psychological biases might be affecting the ability of NBA executives to correctly evaluate how many of their available resources should be allocated to a specific player.