Smart or Diverse Start-up Teams? Evidence from a Field Experiment

This paper explores the relationship between cognitive abilities and team performance in a start-up setting in a field experiment in which 573 students in 49 teams started up and managed real companies. Performance in this setting hinges on three tasks: opportunity recognition, problem solving, and implementation. Cognitive ability at the individual level has a positive effect on opportunity recognition and problem solving but no clear effect on implementation. Within teams, a combination of higher and lower cognitive ability levels may be productive insofar as some individuals can be assigned to mundane tasks (that are often involved in implementation), while others can be assigned to tasks that impose a greater cognitive load (problem solving or opportunity recognition). Exogenous variation in otherwise random team composition was ensured by assigning students to teams based on their measured cognitive abilities. Each team performed a variety of tasks, often involving complex decision making. The key result of the experiment is that the performance of start-up teams first increases and then decreases with ability dispersion. Strikingly, average team ability is not related to team performance.

Policy implications 
Diversity should be encouraged in contexts where individuals tend to team up only to similar peers, but it can be detrimental to further increase diversity in teams that are already fairly heterogeneous. Encouraging top students to team up with students of different levels of cognitive ability, instead of joining teams with only high ability individuals, might improve the performance of all resulting teams in the class.
Hoogendoorn, S., Parker, S.C. and Van Praag, M., 2017. Smart or diverse start-up teams? Evidence from a field experiment. Organization Science, 28(6), pp.1010-1028.