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Some professional athletes manage to amass amazing fortunes only to file for bankruptcy a few years after their retirement from sports. How can such large wealth go to waste so quickly? The typical explanation is that poor investments were made. Why does it happen so frequently to them? My take has been that either their wealth attracts swindlers, or the comparative advantage of these athletes is not human capital, or both.
Ruby Henry thinks this has to do with over-confidence. He builds a database of NBA players drafted in the 1990's and collects from various Internet source information about their personalities and their professional characteristics. The first sign of trouble is that most of those venturing into entrepreneurial undertakings do it in food services or real estate, two sectors were bankruptcies are particularly common. The second sign is that they do not seem to diversify much. One can interpret this as the consequence of over-confidence in one's ability and luck. Ruby measures the level of confidence of a player with the number of 3-point shots attempted per playing minute. And it appears that shooting for more 3-pointers later leads to more business ventures, and more bankruptcies. That would explain the variation across NBA players. But does that explain why NBA on average have more bankruptcies, and especially more spectacular ones?
Ruby Henry thinks this has to do with over-confidence. He builds a database of NBA players drafted in the 1990's and collects from various Internet source information about their personalities and their professional characteristics. The first sign of trouble is that most of those venturing into entrepreneurial undertakings do it in food services or real estate, two sectors were bankruptcies are particularly common. The second sign is that they do not seem to diversify much. One can interpret this as the consequence of over-confidence in one's ability and luck. Ruby measures the level of confidence of a player with the number of 3-point shots attempted per playing minute. And it appears that shooting for more 3-pointers later leads to more business ventures, and more bankruptcies. That would explain the variation across NBA players. But does that explain why NBA on average have more bankruptcies, and especially more spectacular ones?
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