Monday, April 05, 2010

The Superstar Effect

Jonah Lehrer, author of How We Decide, wrote an article for the Wall Street Journal this weekend about the "superstar effect." Lehrer described the research of Northwestern economist Jennifer Brown. In her research on professional golf, Brown found that the presence of Tiger Woods in a tournament tended to be associated with poorer performance on the part of the other golfers. Brown surmised that the presence of this dominating superstar tended to have a negative effect on the performance of other players, perhaps because they "cut their losses" in the face of inevitable defeat and exert less effort.

Lehrer and Brown conclude that this finding about a superstar effect has implications for companies as they design incentive compensation systems. If a huge bonus awaits the few people who are rated at the top in a particular organizational unit, with a large drop-off for those who fall short of the top tier, then we may see this negative superstar effect on many people's performance.

Are there other explanations for the superstar effect? One thought that I have is that we may be seeing excessive risk-taking behavior in the face of a superstar's presence. After all, if one has to compete against a dominant superstar, then a person may gamble on high risk, high return strategies, knowing that their usual performance won't be good enough to succeed. In short, perhaps we roll the dice more often if competing against a superstar, rather than expending less effort. The risk-taking may explain why we observe what appears to be abnormally poor outcomes in the presence of a superstar such as Woods in a golf tournament.

Coming back to corporate incentive systems, perhaps the superstar effect explains why we observe excessive risk-taking in some corporations. Perhaps some individuals conclude that their usual performance won't get them to the top, that only a roll of the dice will enable them to top the superstar(s) in the competition for bonuses, promotions, and the like.

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