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Selecting the Best: The Persistent Effects of Luck

Author

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  • Drugov, Mikhail
  • Meyer, Margaret
  • Möller, Marc

Abstract

We analyze a model of organizational learning where agents’ performance reflects time-invariant unobservable ability, privately-chosen effort, and noise. Our main result is that, even when performance is almost entirely random, maximizing the probability of identifying the best agent (“selective efficiency†) requires biasing final selection in favor of early winners. Making luck persistent, e.g. through fast-tracks, is thus rationalized by the pursuit of selective efficiency. Agents’ strategic efforts amplify the persistence of luck. Organizational learning also affects the persistence of initial advantages stemming from identity. Identity-dependent biases, e.g. gender-specific mentoring, create incentives that make selection both more efficient and more equitable.

Suggested Citation

  • Drugov, Mikhail & Meyer, Margaret & Möller, Marc, 2024. "Selecting the Best: The Persistent Effects of Luck," CEPR Discussion Papers 19309, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19309
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    References listed on IDEAS

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    1. Christian Belzil & Michael Bognanno, 2008. "Promotions, Demotions, Halo Effects, and the Earnings Dynamics of American Executives," Journal of Labor Economics, University of Chicago Press, vol. 26(2), pages 287-310, April.
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    More about this item

    Keywords

    Organizational learning; Incentives; Selective efficiency; Discrimination; Inequality;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J70 - Labor and Demographic Economics - - Labor Discrimination - - - General
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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