Treating Transparently Random Events as Predictable: Rare, random events happen all the time. The odds of winning a national lottery are exceedingly small, but nevertheless given the number of people playing, someone is eventually bound to win. Observational data and simulation studies suggest that luck plays a role in determining consequential outcomes in many domains, especially among the most successful performers. Yet there is little experimental evidence showing how lucky success affects the beliefs and subsequent behavior of individuals who experience it.
In this research, I examine how people respond to real, randomly determined performance outcomes. My paradigm uses a simple, quintessentially random task––predicting the outcomes of five fair coin flips––as evidence of how performance systematically affects people’s beliefs and behaviors, even when that performance is totally and transparently determined by chance. Analyzing the prediction performance of over 12,000 participants, flipping both virtual and real coins, I find that increasing success leads people to be more optimistic about future performance, to take bigger risks, and to shift their performance attributions from luck to skill.
This work demonstrates that even in a domain where outcomes are totally and transparently randomly determined, people’s beliefs and behavior are sensitive to past performance. This has implications for how we evaluate and reward performance in organizations, and suggests that merely identifying the role that luck plays in consequential domains may not be enough to eliminate its effect on forecasts of future performance.