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Fooled by performance randomness: over-rewarding luck

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Listed:
  • 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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    File URL: http://external-apps.qut.edu.au/business/documents/QuBEWorkingPapers/2017/Fooled%20by%20randomness.pdf
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    References listed on IDEAS

    as
    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. 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.
    3. 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.
    4. Prendergast, Canice & Topel, Robert, 1993. "Discretion and bias in performance evaluation," European Economic Review, Elsevier, vol. 37(2-3), pages 355-365, April.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    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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