How Relative Performance Information Affects Exploration-exploitation Decisions

Abstract

Employees often make recurring decisions that entail deciding whether to continue using a “status quo” strategy that yields reliable results or try an alternative strategy of unknown efficacy. Via an experiment, we study how relative performance information (RPI)  influences this choice and its expected outcome. We theorize and find that RPI has both a social motivational effect that increases employees’ propensity to explore alternative strategies and an informational effect that helps them determine whether exploring alternative strategies will likely help or harm their performance (i.e., it conveys decision-facilitating benefits). Likewise, as predicted, we also find that RPI’s decision-facilitating benefit occurs more strongly among low- versus high-performing employees. Our study helps inform employers about the decision-facilitating implications of incorporating RPI into their performance feedback systems.