Good decision vs. good results: Outcome bias in the evaluation of financial agents

Christian König-Kersting, Monique Pollmann, Jan Potters and Stefan Trautmann
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Christian König-Kersting: University of Innsbruck
Monique Pollmann: Tilburg University

Theory and Decision, 2021, vol. 90, issue 1, No 3, 61 pages

Abstract: Abstract We document outcome bias in situations where an agent makes risky financial decisions for a principal. In three experiments, we show that the principal’s evaluations and financial rewards for the agent are strongly affected by the random outcome of the risky investment. This happens despite her exact knowledge of the investment strategy, which can, therefore, be assessed independently of the outcome. The principal thus judges the same decision by the agent differently, depending on factors that the agent has no influence on. The effect of outcomes persists in a setting where principals communicate a preferred investment level. Principals are more satisfied with the agent after a random success when the agent did not follow the requested investment level, than after a failed investment that followed their explicit request.

Keywords: Decision under risk; Decisions of agents; Accountability; Outcome bias; Financial advice (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s11238-020-09773-1

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