Navigating Through the Noise: The Effect of Color-Coded Performance Feedback on Decision Making

50 Pages Posted: 1 Feb 2024

See all articles by Eddy Cardinaels

Eddy Cardinaels

Tilburg University - Tilburg University School of Economics and Management; KU Leuven

Stephan Kramer

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Victor S. Maas

University of Amsterdam - Amsterdam Business School

Date Written: January 9, 2024

Abstract

Many companies use color codes in their internal performance reports to highlight how current performance compares to performance in a previous period. We examine whether the use of color coding affects managers’ decision making in a resource allocation task. We argue that managers’ decision accuracy will be lower if they receive noisier feedback, but that this detrimental effect of noise can be mitigated through color coding. Using two experiments, we find evidence consistent with our theory. Managers who receive reports in which performance increases are color coded green and performance decreases are color coded red are less affected by noise than managers who receive feedback reports without color coding. Supplemental analyses suggest that color coding induces managers to process feedback in a more holistic manner, which reduces the adverse effect of noise on managers’ learning processes. Our findings have several important implications for research and practice.

Keywords: Color coding, Feedback, Learning, Noise, Performance measurement

JEL Classification: D91, G40, M10, M40

Suggested Citation

Cardinaels, Eddy and Kramer, Stephan and Maas, Victor S., Navigating Through the Noise: The Effect of Color-Coded Performance Feedback on Decision Making (January 9, 2024). Forthcoming in Contemporary Accounting Research, Available at SSRN: https://ssrn.com/abstract=4688492 or http://dx.doi.org/10.2139/ssrn.4688492

Eddy Cardinaels

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31 134668231 (Phone)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/?uid=e.cardinaels

KU Leuven ( email )

Naamsestraat 69
Leuven, B-3000
Belgium
+32 16326984 (Phone)

HOME PAGE: http://www.kuleuven.be/wieiswie/nl/person/00013472

Stephan Kramer

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

HOME PAGE: http://www.stephankramer.com

Victor S. Maas (Contact Author)

University of Amsterdam - Amsterdam Business School ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

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