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Fooled by performance randomness: over-rewarding luck

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  • Romain Gauriot
  • Lionel Page

Abstract

We provide evidence of a violation of the informativeness principle whereby lucky successes are overly rewarded. We isolate a quasi-experimental situation where the success of an agent is as good as random. To do so, we use high quality data on football (soccer) matches and select shots on goal which landed on the goal posts. Using non scoring shots, taken from a similar location on the pitch, as counterfactuals to scoring shots, we estimate the causal effect of a lucky success (goal) on the evaluation of the player’s performance. We find clear evidence that luck is overly influencing managers’ decisions and evaluators’ ratings. Our results suggest that this phenomenon is likely to be widespread in economic organizations.

Suggested Citation

  • Romain Gauriot & Lionel Page, 2017. "Fooled by performance randomness: over-rewarding luck," QuBE Working Papers 049, QUT Business School.
  • Handle: RePEc:qut:qubewp:wp049
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    References listed on IDEAS

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    Cited by:

    1. Anil Özdemir & Helmut Dietl & Giambattista Rossi & Rob Simmons, 2022. "Are workers rewarded for inconsistent performance?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 61(2), pages 137-151, April.
    2. Bar-Eli, Michael & Krumer, Alex & Morgulev, Elia, 2020. "Ask not what economics can do for sports - Ask what sports can do for economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 89(C).
    3. Romain Gauriot Author e-mail: romain.gauriot@nyu.edu & Lionel Page Author e-mail: lionel.page@uts.edu.au, 2021. "How Market Prices React to Information: Evidence from Binary Options Markets," Working Papers 20200058, New York University Abu Dhabi, Department of Social Science, revised Oct 2021.
    4. Deschamps, Pierre & De Sousa, José, 2021. "Labor mobility and racial discrimination," European Economic Review, Elsevier, vol. 135(C).
    5. Oliver Merz & Raphael Flepp & Egon Franck, 2021. "Underestimating randomness: Outcome bias in betting exchange markets," Working Papers 390, University of Zurich, Department of Business Administration (IBW).
    6. Raphael Flepp & Egon Franck, 2021. "The Performance Effects Of Wise And Unwise Managerial Dismissals," Economic Inquiry, Western Economic Association International, vol. 59(1), pages 186-198, January.
    7. Colella, Fabrizio & Dalton, Patricio & Giusti, G., 2018. "You'll Never Walk Alone : The Effect of Moral Support on Performance," Other publications TiSEM 1dac53ca-9483-48f5-84b0-0, Tilburg University, School of Economics and Management.
    8. Raphael Flepp & Egon Franck, 2019. "The role of boards' misperceptions in the relation between managerial turnover and performance: Evidence from European football," Working Papers 380, University of Zurich, Department of Business Administration (IBW).
    9. Nisvan Erkal & Lata Gangadharan & Boon Han Koh, 2022. "By chance or by choice? Biased attribution of others’ outcomes when social preferences matter," Experimental Economics, Springer;Economic Science Association, vol. 25(2), pages 413-443, April.
    10. Barry Reilly & Robert Witt, 2021. "The Effect of League Design on Spectator Attendance: A Regression Discontinuity Design Approach," Journal of Sports Economics, , vol. 22(5), pages 514-545, June.
    11. Nisvan Erkal & Lata Gangadharan & Boon Han Koh, 2021. "Gender Biases in Performance Evaluation: The Role of Beliefs versus Outcomes," University of East Anglia School of Economics Working Paper Series 2021-09, School of Economics, University of East Anglia, Norwich, UK..
    12. Anil Özdemir & Helmut Dietl & Giambattista Rossi & Robert Simmons, 2020. "Are Workers Rewarded for Inconsistent Performance?," Working Papers 386, University of Zurich, Department of Business Administration (IBW).
    13. Brownback, Andy & Kuhn, Michael A., 2019. "Understanding outcome bias," Games and Economic Behavior, Elsevier, vol. 117(C), pages 342-360.
    14. Marc Brechot & Raphael Flepp, 2020. "Dealing With Randomness in Match Outcomes: How to Rethink Performance Evaluation in European Club Football Using Expected Goals," Journal of Sports Economics, , vol. 21(4), pages 335-362, May.
    15. Nisvan Erkal & Lata Gangadharan & Boon Han Koh, 2018. "Attribution biases in Leadership: Is it effort or luck ?," Department of Economics - Working Papers Series 2040, The University of Melbourne.
    16. Fehr, Dietmar & Vollmann, Martin, 2020. "Misperceiving Economic Success: Experimental Evidence on Meritocratic Beliefs and Inequality Acceptance," Working Papers 0695, University of Heidelberg, Department of Economics.
    17. Raphael Flepp, 2021. "Uninformative Performance Signals and Forced CEO Turnover," Working Papers 389, University of Zurich, Department of Business Administration (IBW).

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    More about this item

    Keywords

    contract theory; informativeness principle; quasi-experiment; outcome bias; behavioural economics.;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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