Beware the False Record Effect

False record effect

After writing about several examples of bias from insensitivity to sample size, a former colleague asked whether I thought performance in the workplace was subject to the same bias. She observed people were sometimes rewarded or even promoted for high performance, even if that performance was sporadic rather than sustained. She asked:

Shouldn’t the promotion of an employee be tied to a larger sample size (i.e., more time)?

The answer is heavily nuanced. In my own experience, performance at work is not solely based on your own skills. A variety of external factors come into play, including the difficulty of your tasks, the quality of your team, and even some luck. The more time you have to observe an employee, the more you can tell how much impact these external factors had.

James G. March, Professor Emeritus at Stanford University, describes this as the False Record Effect:

A group of managers of identical (moderate) ability will show considerable variation in their performance records in the short run. Some will be found at one end of the distribution and will be viewed as outstanding; others will be at the other end and will be viewed as ineffective. The longer a manager stays in a job, the less the probable difference between the observed record of performance and actual ability.

This doesn’t necessarily mean that seniority is a better way to determine promotions. Organizations that favor “time in seat” over short-term success lose the benefit of fresh perspectives and can become stale.

We are more susceptible to the False Record Effect early on in an employee’s career when there is less performance data available to make decisions. As Professor March cautions:

Within a group of managers of varying abilities, the faster the rate of promotion, the less likely it is to be justified.

In other words, the fast start might be an anomaly and the employee could have a regression toward the mean.

So, what should an organization do to avoid the false record effect. In business as in sports, recognize we likely will be biased by the hot hand fallacy. When deciding on a promotion, don’t just consider an employee’s most recent performance. Check whether this performance has been sustained over time, with different teams, in different situations, and with multiple success criteria. This increases the likelihood this performance is repeatable.

When in doubt, promote those who have a history of making others better, not just themselves.

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