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Does Performance Pressure Accentuate Outcome Bias? Evidence from Managerial Dismissals


Jedelhauser, Fabienne; Flepp, Raphael; Meier, Pascal Flurin; Franck, Egon (2024). Does Performance Pressure Accentuate Outcome Bias? Evidence from Managerial Dismissals. UZH Business Working Paper Series 402, University of Zurich.

Abstract

Outcome bias refers to the tendency to overweight the informativeness of observed outcomes in evaluations, consequently underestimating the influence of luck. However, observed outcomes that fall short of expectations simultaneously trigger performance pressure, potentially reinforcing outcome bias in evaluation decisions such as managerial dismissals. Using data from European football, we investigate whether managerial dismissal decisions are influenced by luck operationalized as opponent player injuries and whether this influence is more pronounced under performance pressure. Our findings reveal that luck significantly impacts dismissal decisions, particularly as performance pressure mounts. Importantly, this amplified outcome bias under performance pressure is predominantly driven by instances of bad luck. These results suggest that the extent of outcome bias has been underappreciated, especially in situations involving bad luck.

Abstract

Outcome bias refers to the tendency to overweight the informativeness of observed outcomes in evaluations, consequently underestimating the influence of luck. However, observed outcomes that fall short of expectations simultaneously trigger performance pressure, potentially reinforcing outcome bias in evaluation decisions such as managerial dismissals. Using data from European football, we investigate whether managerial dismissal decisions are influenced by luck operationalized as opponent player injuries and whether this influence is more pronounced under performance pressure. Our findings reveal that luck significantly impacts dismissal decisions, particularly as performance pressure mounts. Importantly, this amplified outcome bias under performance pressure is predominantly driven by instances of bad luck. These results suggest that the extent of outcome bias has been underappreciated, especially in situations involving bad luck.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
JEL Classification:D81, D86, D91, J44, Z2
Uncontrolled Keywords:Outcome Bias, Luck, Performance Pressure, Managerial Dismissal, Principal-Agent Setting
Scope:Discipline-based scholarship (basic research)
Language:German
Date:2024
Deposited On:27 May 2024 14:32
Last Modified:27 May 2024 14:33
Series Name:UZH Business Working Paper Series
Number of Pages:36
ISSN:2296-0422
OA Status:Green
Free access at:Official URL. An embargo period may apply.
Official URL:https://www.business.uzh.ch/de/research/wps.html
  • Content: Published Version
  • Language: English