Do Individual Salaries Depend on the Performance of the Peers? Prototype Heuristic and Wage Bargaining in the NBA

Harald Oberhofer, Marian Schwinner

Publication: Working/Discussion PaperWU Working Paper

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Abstract

This paper analyzes the link between relative market value of representative subsets of athletes in the National Basketball Association (NBA) and individual wages. NBA athletes are categorized with respect to multiple performance characteristics utilizing the k-means algorithm to cluster observations and a group's market value is calculated by averaging real annual salaries. Employing GMM estimation techniques to a dynamic wage equation, we find a statistically significant and positive effect of one-period lagged relative market value of an athlete's representative cluster on individual wages after controlling for past individual performance. This finding is consistent with the theory of prototype heuristic, introduced by Kahneman and Frederick (2002), that NBA teams' judgment about an athlete's future performance is based on a comparison of the player to a prototype group consisting of other but comparable athletes.
Original languageEnglish
Publication statusPublished - 2017

Publication series

NameDepartment of Economics Working Paper Series
No.247

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 502025 Econometrics
  • 502027 Political economy
  • 502003 Foreign trade
  • 502013 Industrial economics

WU Working Paper Series

  • Department of Economics Working Paper Series

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