Question

1. In the National Basketball Association, first-round draft picks are paid a guaranteed salary for at least three years. Second round picks have no such guarantees. Suppose the Philadelphia 76ers select Cassius Winston with the 30^th pick of the 2020 draft and Franz von Papen with the 31^st pick. The 30^th pick is the last pick of the first round and the 31^st is the first pick of the second round. Will the 76ers treat the two players differently

1. If they follow neo-classical (standard) economic behavior?

If they follow behavioral economic behavior?

Answer 1

The Neo Classical Approach :-

Instead of automatically granting the topic to the worst team the neoclassical approach involves holding a draft lottery to determine who chooses first. The top four picks are allocated by chance among the 14 teams that did not make the playoffs the year before. Thus the player chosen from the first draft and the second draft would be treated equally by the team .

The Behavioral economics approach :-

The behaviour economics approach is different from the neoclassical approach as it considers three main elements in order to to determine the contract amount of the players .The three main element are :-

1) performance that is a value of a draft pick based on the veterans salary .

2) second is compensation that is the draft picks charge towards team salary cap .

3) third is the surplus that is the difference between the performance and the compensation.

A practical approach is adopted which compares draftees compensation with the value of their performance on the field over the first five years. Draft picks taken at the end of the first round and in the second net a much larger benefit from a team then the first pick.

Therefore it is very much possible that the choosing team may treat the last pick of the first round and the first pick of the second round differently.