Performance evaluation judgments: Effects of prior experience under different performance evaluation schemes and feedback frequencies

This paper documents that previous experience under a performance evaluation system can systematically bias decision makers' subsequent evaluations. In the experiment reported in this paper, subjects made a series of investment decisions under one of four accounting systems, created by crossing evaluation scheme (outcome-based versus decision-based) with outcome feedback frequency (frequent versus infrequent), and then evaluated the performance of other decision makers who had made similar decisions. Consistent with prior research (e.g., Brown and Solomon [1987; 1993], Fisher and Selling [1993], Kennedy [1995], Lipe [1993], and Tan and Lipe [1997]), the evaluations were affected by knowledge of outcomes (i.e., outcome effect). More importantly, the size of this outcome effect varied across the four accounting systems, consistent with an interaction between evaluation scheme and outcome feedback frequency. As expected, experience under the outcome-based evaluation scheme caused a larger outcome effect than experience under the decision-based scheme, and frequent outcome feedback increased the difference between the two schemes.

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