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The Fear of Injury: Explaining Delay in Contract Extensions (SABR 42)

Download the full paper: http://wjspaniel.files.wordpress.com/2008/03/fear-of-injury2.pdfAbstract: Why do we observe delay when sports teams and their players attempt to negotiate contract extensions? We show that a team's uncertainty regarding a player's level of risk aversion causes it. Every time a player takes the field, he risks catastrophic injury which will deny him a large contract in free agency. In a game theoretical model of this bargaining problem, the team begins making offers only the most risk averse players would accept. Over the course of a season, more risk acceptant players credibly reveal their preferences by rejecting offers and risking injury during games. The team then rewards them with larger offers. From a managerial perspective, this model shows that teams should not cut-off negotiations during the season and that risk aversion is an important latent factor to constructing an affordable team.This video is a longer version of the presentation I will be giving at the 42nd Annual Convention of the Society for American Baseball Research (SABR) later this month.
Length: 30:57

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