The Impact of Non-Financial Incentives on Judgmental Forecasting Performance

23 Pages Posted: 23 Sep 2014

See all articles by Hyo Young Kim

Hyo Young Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Yun Lee

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Duk Bin Jun

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Date Written: September 1, 2014

Abstract

We analyze the effects of non-financial incentives that provide relative performance feedback on judgmental forecasting performance. Using a controlled laboratory experiment, we find that the provision of such non-financial incentives improves judgmental forecasting accuracy, especially when subjects are consistently informed that their ranks are the lowest in the group. This is consistent with loss aversion, i.e., people’s tendency to avoid losses is stronger than to acquire gains. Competitors who are behind see their performance as a loss and work harder than those who are ahead to avoid the loss. On the contrary, subjects who are consistently told that they are ranked the first, perform worse as the leading participants tend to slack off. We also find that non-financial incentives when combined with financial reward, impede forecasting performance.

Keywords: Competition; rank feedback; exponential smoothing; behavioral operations

Suggested Citation

Kim, Hyo Young and Lee, Yun and Jun, Duk Bin, The Impact of Non-Financial Incentives on Judgmental Forecasting Performance (September 1, 2014). KAIST College of Business Working Paper Series No. 2014-010, Available at SSRN: https://ssrn.com/abstract=2500058 or http://dx.doi.org/10.2139/ssrn.2500058

Hyo Young Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

Yun Lee (Contact Author)

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

Duk Bin Jun

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

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