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Superstitious learning in rare and complex events: theory and evidence from corporate acquisitions

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In this paper, superstitious learning is conceptualized as a phenomenon related to the dual effect of experience accumulation: the development of competence and the development of confidence in one's competence. When confidence develops more rapidly than competence as experience accumulates, learning is superstitious for both causal and outcome ambiguity reasons. I argue that superstitious learning from rare and complex events is rooted in fundamental ambiguity on the performance outcomes of organizational tasks, even before the problem of causal ambiguity emerges, and develop a dual test for detecting the presence of this problem in the context of corporate acquisitions. The conditions defining the boundaries of the phenomenon are then considered: two mitigating factors are identified in the heterogeneity of the stock of accumulated experience and in deliberate learning processes. I test these arguments with a sample of US bank mergers and find evidence that managers' self-attributions of success in previous acquisitions are negatively related to the actual performance of the focal merger, and that this effect increases as they accumulate experience. Consistent with the theoretical arguments developed, the effect is significantly reduced as the stock of experience becomes more heterogeneous and knowledge is systematically articulated and codified.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2007/2007-20.pdf

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Copyright INSEAD. All rights reserved