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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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    1. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    2. Pedro Garcia-del-Barrio & Stefan Szymanski, 2009. "Goal! Profit Maximization Versus Win Maximization in Soccer," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(1), pages 45-68, February.
    3. Daniel R. Marburger, 2003. "Does the Assignment of Property Rights Encourage or Discourage Shirking?," Journal of Sports Economics, , vol. 4(1), pages 19-34, February.
    4. Romain Gauriot & Lionel Page, 2015. "I Take Care of My Own: A Field Study on How Leadership Handles Conflict between Individual and Collective Incentives," American Economic Review, American Economic Association, vol. 105(5), pages 414-419, May.
    5. Sloane, Peter J, 1971. "The Economics of Professional Football: The Football Club as a Utility Maximiser," Scottish Journal of Political Economy, Scottish Economic Society, vol. 18(2), pages 121-146, June.
    6. Prendergast, Canice & Topel, Robert, 1993. "Discretion and bias in performance evaluation," European Economic Review, Elsevier, vol. 37(2-3), pages 355-365, April.
    7. Alberto Abadie & Guido W. Imbens, 2006. "Large Sample Properties of Matching Estimators for Average Treatment Effects," Econometrica, Econometric Society, vol. 74(1), pages 235-267, January.
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    Citations

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    Cited by:

    1. 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).
    2. 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.
    3. 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.
    4. Romain Gauriot Author e-mail: romain.gauriot@nyu.edu & Lionel Page Author e-mail: lionel.page@uts.edu.au, 2020. "How Market Prices React to Information: Evidence from a Natural Experiment," Working Papers 20200058, New York University Abu Dhabi, Department of Social Science, revised Oct 2020.
    5. 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.
    6. 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.
    7. 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).
    8. 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).
    9. Brownback, Andy & Kuhn, Michael A., 2019. "Understanding outcome bias," Games and Economic Behavior, Elsevier, vol. 117(C), pages 342-360.

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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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