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Skill or Luck? Biases of Rational Agents

  • Eric, Van den Steen

This paper shows why, in a world with differing priors, rational agents tend to attribute their own success more to skill and their failure more to bad luck than an outsider. It further shows why each agent in a group might think he or she is the best, why an agent might overestimate the control he has over the outcome, and why two agents' estimated contributions often add up to more than 100%. Underlying all these phenomena is a simple and robust mechanism that endogenously generates overoptimism about one's own actions. The paper also shows how these biases hinder learning and discusses some implications for organizations.

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File URL: http://hdl.handle.net/1721.1/1569
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Paper provided by Massachusetts Institute of Technology (MIT), Sloan School of Management in its series Working papers with number 4255-02.

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Date of creation: 09 Aug 2002
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Handle: RePEc:mit:sloanp:1569
Contact details of provider: Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
Phone: 617-253-2659
Web page: http://mitsloan.mit.edu/

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Order Information: Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

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  1. Harsanyi, John C., 1994. "Games with Incomplete Information," Nobel Prize in Economics documents 1994-1, Nobel Prize Committee.
  2. Morris, Stephen, 1995. "The Common Prior Assumption in Economic Theory," Economics and Philosophy, Cambridge University Press, vol. 11(02), pages 227-253, October.
  3. Joel L. Schrag, 1999. "First Impressions Matter: A Model Of Confirmatory Bias," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 37-82, February.
  4. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
  5. Glenn Ellison, 2000. "Evolving Standards for Academic Publishing: A q-r Theory," NBER Working Papers 7805, National Bureau of Economic Research, Inc.
  6. Harrison, J Michael & Kreps, David M, 1978. "Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations," The Quarterly Journal of Economics, MIT Press, vol. 92(2), pages 323-36, May.
  7. Edward P. Lazear, 2001. "The Peter Principle: Promotions and Declining Productivity," NBER Working Papers 8094, National Bureau of Economic Research, Inc.
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