Impact Aversion: Agency Failure and Decision Bias at High Stakes

Abstract

Incentives are thought to solve principal-agent problems and to reduce decision biases. We test these propositions by analyzing over a million decisions made by Major League Baseball umpires. Even though MLB directs and incentivizes umpires to apply a consistent decision rule, we nd that every umpire reveals an aversion to choices that would more strongly change the expected outcome of the game. We model the umpire as wanting to make the correct choice, but also wanting to avoid making a pivotal choice in error. When the correct choice is not obvious, the umpire will shade away from choices that represent greater departures from the current state. This impact aversion represents both an agency failure and a decision bias, and it results in distortions that increase with the stakes.

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