Which Reference Group to Choose – An Experiment on Feedback Aversion under Continuous Relative Performance Feedback
April, 24th 2019
WHU - Otto Beisheim School of Management
Previous literature clearly documents positive behavioral consequences of providing relative performance feedback. Using social information as a motivational instrument, however, also comes with a cost as people obtain a so-called ego utility from holding optimistic beliefs about themselves. Particularly low-ability types may resort to information avoidance strategies in order to dismiss unfavorable relative performance information or justify their poor performance in hindsight. This experiment focuses on a related phenomenon that arises in situations where people can actively choose the reference group that they compare themselves to. More specifically, choosing a high instead of a low reference group increases the risk of finding oneself lagging behind. The need to revise one’s belief about relative ability downwards would then cause people to suffer from a loss in their ego utility. Therefore, people may try to avoid informative feedback by choosing the low instead of the high reference group. This behavior is eco-nomically costly as it deprives individuals of valuable peer and learning effects and potentially useful information to improve behavior, decision-making and performance. My envisaged experiment aims at disentangling the factors that influence people’s choice of a particular reference group and sheds light on the relative importance of hedonic considerations.