A Behavioral Model of Public Organizations: Bounded Rationality, Performance Feedback, and Negativity Bias

Abstract

In this study, we examine organizational responses to performance management in the public sector by studying Korean public agencies’ responses to their annual performance feedback. In doing so, we employed a regression discontinuity design that exploits the relationship between performance grades and the numeric inputs that determine the grades to uncover the impact of performance management on performance. Evidence suggests that the social and historical aspirations of public organizations significantly influence their performance improvement, as predicted by behavioral theory. We also report evidence supporting the switching aspiration hypothesis; organizations performing below the mean performance of similar others aspire to the average, whereas organizations performing above the mean aspire to improve performance relative to their own historical positions. Overall, our findings provide broad support for the existence of negativity bias in public managers’ decision making as well as for the relevance of behavioral theory and bounded rationality in the context of public administration.