First-Place Loving and Last-Place Loathing: How Rank in the Distribution of Performance Affects Effort Provision

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. ABSTRACT First-Place Loving and Last-Place Loathing: How Rank in the Distribution of Performance Affects Effort Provision *Rank-order relative-performance evaluation, in which pay, promotion and symbolic awards depend on the rank of workers in the distribution of performance, is ubiquitous. Whenever firms use rank-order relative-performance evaluation, workers receive feedback about their rank. Using a real-effort experiment, we aim to discover whether workers respond to the specific rank that they achieve. In particular, we leverage random variation in the allocation of rank among subjects who exerted the same effort to obtain a causal estimate of the rank response function that describes how effort provision responds to the content of rank-order feedback. We find that the rank response function is U-shaped. Subjects exhibit 'first-place loving' and 'last-place loathing', that is subjects increase their effort the most after being ranked first or last. We discuss implications of our findings for the optimal design of firms' performance feedback policies, workplace organizational structures and incentives schemes. JEL Classification:C23, C91, J22, M12

What You Don’t Know…Can’t Hurt You? A Natural Field Experiment on Relative Performance Feedback in Higher Education

“…An alternative explanation is that, as shown in the previous section, the informational gap between treated and control students increases sharply when the intervention is first implemented but then it tends to decrease over time. 23…”

“…If anything, the impact of the treatment on educational performance is slightly stronger among female students, among students with a lower performance in their first year in university, and among students with a lower High-School entry grade. 23…”

“…In a lab setting, studies have also investigated the role of feedback under various incentive schemes, showing its importance (Ertac, 2005 Gill et al, 2016). These studies do not elicit beliefs on ranking position, with the exception of Khunen and Tymula (2012), who, under flatrate incentives, find that those who rank lower than expected increase effort and those who rank higher than expected reduce effort, although the overall effect is positive.…”

“…We are not correcting standard errors for multiple testing in this table because the analysis is driven by the theoretical prediction that the treatment should (i) have a negative impact for individuals that underestimate their ranking, (ii) no effect for individuals who know their position in the distribution, and (iii) a positive impact for individuals that overestimate their position in the distribution 23. Similarly, we also observe that the effect is stronger among students who experience a larger decline in their grades relative to their High School grades.…”

Disappointment Aversion and Social Comparisons in a Real‐effort Competition

“…Our framework for studying social comparison effects in a contest is the two-person sequential real effort competition studied by Gill and Prowse (2012) (hereafter GP). In their model, they show that a disappointment averse second mover (i.e., a second mover who is loss averse around an expectations-based reference point) responds negatively to a first mover's effort, and in their experiment they find significant evidence for this discouragement effect.…”