Sticking with What (Barely) Worked

Abstract

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 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.

Keywords: outcome bias, hindsight bias, Bayesian updating, strategy revision

JEL Classification: C11, D03, D81, L83