Sunk costs affect experts’ high-stakes decisions, suggests a study by Quinn A.W. Keefer at California State University, San Marcos. Keefer found that in the NFL, a player’s salary cap value (fixed for a given season, and so a major sunk cost to teams) affects his number of games started, even after controlling for performance. A 15% increase in compensation has an effect on playing time equivalent to an increase of five to 11 solo tackles for linebackers, one to two interceptions for defensive backs and two to five-and-a-half sacks for defensive linemen. This effect remains even when teams get performance feedback and persists throughout an average player’s entire career, suggesting that the effect of compensation on playing time is being caused by the sunk-cost fallacy, not simply lack of data.

(Source: Journal of Labor Research)

Published in Dawn, Business & Finance weekly, February 8th, 2016