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Selecting the Best: The Persistent Effects of Luck

Author

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  • Drugov, Mikhail
  • Meyer, Margaret
  • Möller, Marc

Abstract

We analyze a model of organizational learning where agents’ performance reflects time-invariant unobservable ability, privately-chosen effort, and noise. Our main result is that, even when performance is almost entirely random, maximizing the probability of identifying the best agent (“selective efficiency†) requires biasing final selection in favor of early winners. Making luck persistent, e.g. through fast-tracks, is thus rationalized by the pursuit of selective efficiency. Agents’ strategic efforts amplify the persistence of luck. Organizational learning also affects the persistence of initial advantages stemming from identity. Identity-dependent biases, e.g. gender-specific mentoring, create incentives that make selection both more efficient and more equitable.

Suggested Citation

  • Drugov, Mikhail & Meyer, Margaret & Möller, Marc, 2024. "Selecting the Best: The Persistent Effects of Luck," CEPR Discussion Papers 19309, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19309
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    References listed on IDEAS

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    1. Margaret A. Meyer, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(1), pages 15-41.
    2. Christian Belzil & Michael Bognanno, 2008. "Promotions, Demotions, Halo Effects, and the Earnings Dynamics of American Executives," Journal of Labor Economics, University of Chicago Press, vol. 26(2), pages 287-310, April.
    3. Stephanie Lluis, 2005. "The Role of Comparative Advantage and Learning in Wage Dynamics and Intrafirm Mobility: Evidence from Germany," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 725-768, October.
    4. Du, Qianqian & Gao, Huasheng & Levi, Maurice D., 2012. "The relative-age effect and career success: Evidence from corporate CEOs," Economics Letters, Elsevier, vol. 117(3), pages 660-662.
    5. Robert Gibbons & Michael Waldman, 1999. "A Theory of Wage and Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1321-1358.
    6. Robert H. Frank, 2016. "Success and Luck: Good Fortune and the Myth of Meritocracy," Economics Books, Princeton University Press, edition 1, number 10663.
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    More about this item

    Keywords

    Organizational learning; Incentives; Selective efficiency; Discrimination; Inequality;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J70 - Labor and Demographic Economics - - Labor Discrimination - - - General
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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