MICRO/THEORY: Peer Evaluations: Exploiting Truthtelling as a Social Norm (the Power of Truthiness); Professor John Wooders (NYU Abu Dhabi)

Abstract:

Settings in which a supervisor or manager observes the overall result of the efforts of her subordinates but not their individual efforts are ubiquitous: A supervisor in a government office observes average client satisfaction, but cannot observe the quality of each of her subordinate's interactions with clients. A store manager observes overall sales, but not each salesperson's contribution to sales. Employees, by contrast, are often better informed about the contributions of their co-workers as they observe their co-workers' efforts directly. This paper develops a theoretical model of peer evaluations and tests it experimentally. Experimentally, we find that the introduction of evaluations increases effort and welfare even when evaluations do not enter payoffs. Consistent with theory, effort and welfare increase in the payoff weight on evaluations. Effort and welfare, however, decrease when payoffs are determined solely by evaluations, as a consequence of a breakdown of truthtelling.