Does Performance Pressure Accentuate Outcome Bias? Evidence from Managerial Dismissals

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.

Keywords: Outcome Bias, Luck, Performance Pressure, Managerial Dismissal, Principal-Agent Setting

JEL Classification: D81, D86, D91, J44, Z2