Fooled by Performance Randomness: Over-Rewarding Luck

Publisher:
MIT Press - Journals
Publication Type:
Journal Article
Citation:
The Review of Economics and Statistics, 2018
Issue Date:
2018-11-02
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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.
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