Document Type

Article - post-print

Publication Date

2008

Abstract

When deciding what salary to offer an employee, a firm needs to predict that employee’s future productivity. One piece of information that a firm can use to predict productivity is the employee’s past performance record. Classical theory predicts that firms will effectively use the available information to choose an appropriate salary offer. Evidence from baseball contracts indicates, however, that memory-based biases influence salary offers. Consistent with insights from psychology and behavioral economics, salaries are affected too much by recent performance compared with past performance. All organizations do not suffer equally from short memories. The teams that achieve the most with the money that they spend also use past performance data most effectively.

Publisher Statement

This is an author-manuscript of an article accepted for publication in Journal of Sports Economics following peer review. The version of record: Healy, Andrew. 2008. “Do Firms Have Short Memories? Evidence from Major League Baseball,” Journal of Sports Economics 9(4): 407-424. is available online at: https://doi.org/10.1177/1527002507310440.

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