Interpreting a Social Reference Point: Peer Performance Feedback and Exploration-Exploitation

Abstract

In this paper, we examine how intra-organizational peer performance feedback influences exploration-exploitation decisions. Data from two behavioral experiments suggest that an agent’s propensity to explore is influenced not only by whether their peer performs better or worse but also by individual and situational factors that affect how peer performance feedback is interpreted. In particular, we report three main findings. First, we find that providing individuals with feedback from a high-performing peer leads to more exploration than feedback from a low-performing peer. Second, we find that this difference in behavior is driven by the subset of individuals who receive feedback from a high-performing peer who also have a low tendency to self-enhance. Third, we find that when the task environment is less ambiguous, feedback from a low-performing peer tends to curtail exploration; when the task environment is more ambiguous, this is no longer the case. Overall, our findings provide insight into the individual and situational contingencies of learning from performance feedback. They also suggest implications for organization design, which we address in our discussion section.