So . . . NBA free agency begins tonight, with the most discussed, highest-rated, most completely overhyped free agent class in history. Never mind that historically, top players stay with their existing team. There is going to be a seismic shift in the NBA starting tonight, if the commentators (who have no actual, you know, information) are right. Which naturally brings up the topic of dictator games.
(Hopefully around this time you are saying "ahhh . . . that's where the title of this post comes from," and possibly "huh? what do dictators have to do with basketball?" The answer to the second reaction is coming. By the way, rejected titles included: Scrabble with Stalin, Monopoly with Mussolini, Mao-jongg, I Spy Idi Amin, Nicolae Ceau-Chess-scu, Pol Pot Limit 'Hold em, Connect Four with Castro, Sorry! with Saddam, Pinochet's Pinochle. Any other suggestions are welcome.)
Dictator games are often used in psychological experiments. The basic setup is such that there is an amount of money to divide between two people. One person, the proposer or dictator, gets to decide how the money will be split. The other person, the responder, gets to accept or reject this division. If the responder accepts, the money is divided based on the proposer's plan. If the responder rejects, neither person gets anything.
From a purely rational perspective, the responder should accept any amount greater than zero, because doing so leaves them better off than otherwise. Knowing this, the proposer should offer as little as possible, so that he gets the most money out of the split.
But people don't behave this way. Responders would rather get nothing than an inequitable split of the cash. And proposers don't short-change the responders, either. Research has shown that if offered less than about 30% of the money, responders reject the deal, and that proposers tend to offer an amount significantly higher than zero. Damn altruistic behaviour, messing up rationality and all.
So what on earth does this have to do with NBA free agency? Well, in the NBA a player can leave his team as a free agent, and the previous team gets nothing in return. Because of this, there are incentives in place to keep a player with his previous team, most notably that he can sign a contract for a maximum of six years (versus 5 years for a previous team), which for a top player can mean an extra $30 million guaranteed money. Because of this, teams have been using what are called "sign-and-trade" deals, where a player signs with his previous team and is immediately traded to the team he actually wants to play for. This way the player gets the absolute maximum amount he can, and the team he's leaving gets a player (or cash, or a future draft selection) in return.
As you can see, there is motivation on both sides for a sign-and-trade. But the team may not want to go along. For example, Chris Bosh is a free agent and is not going to be playing for his previous team, the Toronto Raptors, next season (sorry all you Raptors fans, it's not going to happen). The Raptors are under no obligation to arrange a sign-and-trade, but could benefit from doing so. Bosh definitely benefits from doing so. But looking at dictator games, the Raptors may just say they reject; they would rather go without the compensation to hurt Bosh for leaving, even though they would never have to pay a dime of his higher salary.
(Incidentally, there is an added incentive for teams to do sign-and-trades - by sending the player and his now-longer contract to another team, they are making at least one other team less of a threat to sign free agents in the future, as their salary-cap space is tied up that much longer)
Would a team or general manager engage in the same type of behaviour we see in dictator games? While it's easy to rationalize rejecting the offer to ourselves (that's not fair!) it's more difficult to do so to your boss. And while I don't think that many fans would support Bosh leaving and getting nothing in return (when getting something was an option), I could definitely envision fans saying "screw him, don't let him make the extra money."
Shucks! Just thought of another one - Hoops with Ho Chi Minh.
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