Lars Lefgren, Brennan Platt, Joseph Price
Outcome bias occurs when an evaluator considers ex post outcomes when judging whether a choice was correct ex ante. We formalize this cognitive bias in a simple model of distorted Bayesian updating. We then examine strategy changes made by professional basketball coaches. We find that they are more likely to revise their strategy after a loss than a win—even for narrow losses, which are uninformative about team effectiveness. This increased strategy revision following a loss occurs even when a loss was expected and even when failure is due to factors beyond the team's control. These results are consistent with our model's predictions.
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