In the New York Times, economist Richard Thaler discussed Swoopo.com,
a so-called “entertainment shopping” site. The premise is relatively
simple and somewhat diabolical. Unlike normal auctions sites such as
eBay—which operates as a modified second price auction—Swoopo.com
bidders pay to place each bid in addition to the final selling price.
Though the items sell for far less than retail price, the aggregate of
money spent on bids is huge. Some auctions go in 1 cent increments, so
the site rakes in 61 times the final sale price (60 cents for each cent
the bid goes up and the actual price).
Richard Thaler wrote my favorite sports economics paper, but this issue has an even greater connection to the world of sports. In the article, Thaler talks about the psychological principle of commitment, one of Robert Cialdini’s weapons of influence. Basically, once we start playing, we hate to lose.
While reading the article, I suddenly realized that little separates
me as a sports fan from the Swoopo.com bidder who just spent $1000 on a
$200 camera. As a fan of the Cleveland teams, I am a prime example of a
person with a commitment problem—too much commitment. With each game I
went to as a child, each hat I bought, each bag of peanuts I devoured,
I was pulling myself deeper and deeper into the spiral of commitment.
Now, I am stuck rooting for teams that have not won a championship
since 1964.
This phenomenon does not just present itself in the world of sports
fandom. Sports teams fall prey to the commitment principle.
Frequently, they fail to understand the idea of sunk costs. Once they
have committed, they are reluctant to drop a player. Take the Houston
Texans, who were faced with a decision about quarterback David Carr
after his fourth season. The team had already sunk a first overall pick
and $21.75 million into the former Fresno State star and it was clear
he was not a very good player. To retain Carr’s services for three
more seasons, his contract called for an $8 million option bonus (in
addition to his salary during those seasons). If they did not pay the
option bonus, they would have to release Carr or try to get him to
renegotiate his deal. Already deeply invested in Carr, the Texans
exercised the option and ended up spending $13.25 million to keep David
Carr around for a fifth season. They dropped him the next year.
If I was starting over, I would probably choose to root for more
successful teams, but this is the hand my hometown has dealt me. Will
it be that much sweeter if/when a Cleveland team finally wins? I can
only commit to hoping that is true.
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