Game Theory and the NBA Lockout
For those that do not follow basketball, there currently is a lockout that is postponing the 2011-2012 National Basketball Association season. The season that was originally slated to begin only days ago should not start for another few weeks due to a large collective bargaining dispute between the NBA’s players and team owners. These negotiations illustrate how game theory operates in the business dealings of professional sports. The two rational actors in this scenario are the body of team owners and the players union. Tyler Cowen and Kevin Grier explain that these negotiations are between two sides with specific goals and very real things to lose. The owners are affected much less by a lockout than the players, so in that regard the owners have leverage over the players, which means the owners will ultimately win out in the end because players will refuse to go jobless. On the other hand, without players the owners would make no money, so the owners still have good reason to compromise and meet the players demands in some form. A current point of dispute has to do with the split of Basketball Related Income (BRI). One portion of BRI goes to players and another portion to owners. The owners refuse to accept a BRI split of more than 50 percent, setting the bar as low as 37 percent for the players. The players meanwhile want 52.5 percent of BRI. This results in the players demanding $500 million more than the owners are willing to give them. In the long run however, the money players could be making this year with reduced salaries makes accepting the owners’ offer the wiser choice, but the players don’t seem to see it this way. This classic battle of wits between players and owners affirms that game theory does work in practice and that when strategy is sacrificed because of a large ego, the actor will be in a clearly undesirable state of affairs.
This situation is an excellent example of how game theory shapes aspects of our society. This is a near perfect model because there are only two distinct parties involved, with neither party having an appealing outside option. The players are not following wise strategy by holding out for as long as they have. It is evident that players care much more about pride than money, as the prolonged negotiations already prove that they would have been fiscally better off with the owner’s proposals than they are now. However, while they are not acting in a strategically sound manner, they have not necessarily made the wrong decision. By refusing to meet the demands of the owners, the players send a very clear message that business as usual is no longer acceptable to the labor force of players. This may have startling repercussions in the near future. With the advent of social networking, bridged components of large social networks, especially in urban areas where basketball is popular, will help diffuse information about non-NBA professional basketball events. This could lead to the creation of other leagues and potentially turn a multi-billion dollar industry on its head.
http://www.grantland.com/blog/the-triangle/post/_/id/8300/two-economists-explain-the-nba-lockout