סמינר באסטרטגיה

Speaker: Nadav Levy from IDC with Alma Cohen, and Roy Sasson (TAU)

We study the relationship between the “investment horizon” of National Basketball Association (NBA) coaches and their decisions to play rookie players. While letting rookies play could produce long-term benefits – by providing the rookie with valuable NBA experience and providing the team with information about the rookie’s promise – coaches with a short investment horizon might place a discounted or no weight on these benefits. Consistent with a short-termism hypothesis, we find that during the period of the NBA’s 1999 collective bargaining agreement (CBA), coaches with a high risk of termination used rookies less frequently.

The identified association between coach termination risk and lower rookie participation was driven by important games, where the short-term costs of letting rookies play could have been especially significant, and did not exist for top draft picks, whose participation could have been worthwhile even from a short-term perspective. The hypothesis that the identified association is caused by short-termism is further supported by two addition findings: that the identified association disappeared after the introduction of the 2005 CBA, which enabled teams to shorten rookie contracts at the end of the first year and thus gave team owners stronger incentives to ensure that short-horizon coaches do not underuse rookies; and that the association did not exist for second-year players, whose accumulated experience reduced both the long-term benefits of providing them with additional NBA experience and the short-term costs of letting them play. Our analysis highlights the potential value of studying the subject of short-termism among agents other than the top executives of large business firms.