The Impacts of Incentives and Anonymity on Peer Evaluation Distortions
Abstract
Firms are increasingly implementing peer evaluation systems and must decide how to design them. In this experimental study, we investigate whether and how (1) an incentive linked to peer evaluations (no vs. yes) and (2) anonymity when evaluating peers (no vs. yes) influence how employees evaluate their peers and whether they distort such evaluations. We argue that according to self-efficacy theory, the economic and psychological costs and benefits vary depending on both factors, leading to different behavioral outcomes. As predicted, we find that an incentive linked to peer evaluations leads to downward peer evaluation distortions (PED), while no incentive leads to upward PED. We also predict and find an interaction effect such that no anonymity (compared to anonymity) has a stronger effect on PED when evaluations are linked to an incentive than when they are not. Our results inform managers regarding how their design choices concerning peer evaluation systems affect the extent to which the evaluations provided correctly reflect peers’ performance.