The psychological effects of centrality bias: an experimental analysis

Abstract

This paper examines the psychological mechanisms that are activated by centrality bias in the context of subjective performance evaluation. Centrality bias refers to compressed evaluations of subordinates, implying that the variance in the performance of the evaluated employees is higher than the variance in the rewards determined by the superior. Based on insights from the social psychology literature, we argue that centrality bias may trigger different psychological mechanisms which affect the subordinates’ willingness to exert work effort. We propose that these effects differ depending on whether employees are above-average or below-average performers. In line with our predictions, we detect a considerable asymmetry in the effects of centrality bias. In particular, we find that the relationship between centrality bias and the willingness to exert work effort is negatively mediated by controlled motivation and procedural fairness perceptions for above-average performers. For below-average performers, we find that centrality bias is positively related to procedural fairness perceptions which are, however, unrelated to the willingness to exert work effort. In addition, we shed light on the role of peer information and find that its disclosure has not a significant impact on the psychological mechanisms at work.