• A
  • A
  • A
  • ABC
  • ABC
  • ABC
  • А
  • А
  • А
  • А
  • А
Regular version of the site

A Biased Evaluation of Employees’ Performance Can Be Useful for Employers

A Biased Evaluation of Employees’ Performance Can Be Useful for Employers

© iStock

In assessing an employee’s performance, employers often listen to his immediate supervisor or colleagues, and these opinions can be highly subjective. Sergey Stepanov, an economist from HSE University, has shown that biased evaluations can actually benefit employers. An article substantiating this finding was published in the Journal of Economic Behavior and Organization.

The model described in the article ‘Biased Performance Evaluation in A Model of Career Concerns: Incentives versus Ex-Post Optimality’ was developed within the ‘career concerns’ framework pioneered by Bengt Holmström. His paper represents the relationship between an employee (often called an agent by economists) and an employer, or principal (broadly speaking, this can be the market as a whole). This modelling considers three components of performance: talent, effort and random factors. An agent’s incentive to exert effort arises from the fact that better performance results in a higher evaluation of the agent’s talent by the market, which, in turn, can help to increase his future wage.

In the canonical model, an employer (or the market) observes the results of an agent’s work. Sergey Stepanov, Assistant Professor of HSE University’s Faculty of Economic Sciences, modified the model by adding an intermediate party – an evaluator. If the principal is busy or has many employees, it would be difficult for her to monitor each agent individually, and thus she will often rely on the evaluation of an agent by his supervisor or peers. For a variety of reasons, their assessments are likely to be biased, either in favour of the agent or against. With this in mind, the question the researcher sought to answer in this study was: ‘what should the best direction and degree of the bias be?’

Sergey Stepanov
Assistant Professor of HSE University’s Faculty of Economic Sciences

In classic career concerns models, the principal observes the performance of an agent directly. However, we know that this is often not the case, and principals receive such information through ‘evaluators’. However, the interests of these people may not coincide with those of the principal. And I thought: maybe it’s actually a good thing that they don’t? Objective evaluation is, of course, optimal from the point of view of making correct decisions about an agent (e.g., to promote him or not), but such an evaluation may create sub-optimal incentives to exert effort.

Agents who are very talented a priori will lose motivation if they are evaluated fairly, because they know they will most likely clear the performance bar even with a low effort. Similarly, agents who are initially believed to be below average will lose motivation because they are unlikely to succeed even with a high effort. Hence, an ideal evaluator should be stricter on employees who seem to be capable and talented, but more lenient towards those who are less capable. In addition, the greater the degree of career concerns of an agent, the less objective the optimal evaluator should be, while the performance of those whose abilities are initially very uncertain, for example, without a prior track record, should be judged most objectively.

Thus, the ‘unfair’ opinion of an evaluator may prove to be more useful in motivating an employee than an objective assessment.

The model may be useful, for example, for organizing internships. This proves that stronger interns with good CVs should indeed be given more demanding supervisors, whereas those for applicants with very brief CVs (which tell very little about their experience of skills) should be more balanced in their assessments.

The results of this research will be useful in evaluating the performance of government officials working on public projects or senior corporate managers, as well as in making internal promotion decisions.

See also:

Economists Suggest Using Media's Attention to Bitcoin to Predict its Returns

Researchers at the HSE Faculty of Economic Sciences have studied the relationship between the changes in the bitcoin prices and the media attention to this cryptocurrency. The researchers examined the mentions of bitcoin in the media between 2017 and 2021 and built a mathematical model that revealed the strong relationship between media attention and bitcoin prices. The study was published in the Applied Stochastic Models in Business and Industry journal.

HSE Economists Develop a Model for Sustainable Solar Geoengineering Agreements

Researchers at HSE University and George Mason University have investigated the sustainability of prospective international agreements on solar geoengineering. The authors have proposed a scheme in which payments flow from affluent nations to less wealthy ones; an arrangement which sets their proposal apart from traditional systems. The proposed model aims to dissuade more vulnerable countries from excessive use of the prevalent geoengineering method by providing compensation for the potential damage they may incur and supporting their adaptation to climate change. The paper has been published in Environmental and Resource Economics.

Crypto Investors Receive Downside Risk Premiums

Victoria Dobrynskaya, Assistant Professor at the HSE Faculty of Economic Sciences, has analysed the price dynamics of 2,000 cryptocurrencies from 2014 to 2021 and investigated the association between downside risks and average returns in the cryptocurrency market. As it turns out, cryptocurrencies exhibiting a greater risk tend to yield higher average returns. The study has been published in International Review of Financial Analysis.

Results of the Contest to Predict Nobel Prize Winners in Economics

Claudia Goldin's award was predicted by five people. They are Olga Peresypkina (RSVPU), Anastasia Sirotina (first-year student of the Bachelor's in Applied Mathematics and Information Science at HSE University), Mikhail Shabanov (Global Vision Asset Management LLC), Tatul Hayrapetyan (PhD student at the Stanford Graduate School of Business), and Hemant Kumar (Ettumanoorappan College, Kerala, India).

Financial Sector Risks Can Hinder Transition to Green Economy

According to HSE and MGIMO economists, increased financial sector risks in developed countries may be associated with a higher carbon footprint in banks' loan portfolios. This is likely due to the fact that in response to an unstable economic situation, banks tend to issue more loans to companies that have a detrimental impact on the environment. Although this might yield short-term profits for the banks, such trends hinder humanity's progress towards achieving a green economy. The paper has been published in Environmental Science and Pollution Research.

Winner of 2023 Nobel Prize in Economics Announced

The Royal Swedish Academy of Sciences has awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2023 to Claudia Goldin (Harvard University, Cambridge, MA, USA), ‘for having advanced our understanding of women’s labour market outcomes.’ According to the Nobel committee, Professor Goldin has uncovered key factors that determine gender differences in the labour market.

Millennials Are Three Times Ahead of Zoomers in the Monetised Creator Economy. Even Boomers Outperform Them. Okay Then…

A group of specialists from the HSE Institute for Cultural Studies, Vitaly Kurennoy, Alexander Suvalko and Maria Figura, have determined two main trends that are actively shaping the image of the creative economy and culture in 2021-2023: the creator economy and the maker economy.

Teaching Masters' Students and Conducting Lectures in English Boost Academic Productivity

HSE researchers have analysed teaching load data at the HSE campus in St Petersburg to investigate the potential impact of teaching on faculty research output. They found that factors such as teaching primarily masters' courses, conducting 20% of lectures in English, and supervising only one doctoral student per year were associated with a greater likelihood of producing more high-quality academic papers. The study has been published in Higher Education Quarterly.

'HSE Paved My Road to Harvard'

Nargiz Mammadova, from Azerbaijan, is a 2022 graduate of the Economics: Research Programme and a finalist of the Global Essay Competition in St. Gallen. As she prepares to start her Master of Public Administration in International Development programme at Harvard in August 2023, Nargiz reflects on her time studying at HSE University during the COVID-19 pandemic, talks about her work for the State Oil Fund of Azerbaijan, and shares an important message for future students.

Income and Cost of Living Distribution Found to Be Similar in Russia and US

Researchers at the HSE Faculty of Economic Sciences Laboratory for Wealth Measurement analysed income and cost of living data at the sub-regional level in Russia (municipalities) and in the US (counties). The study reveals that territorial differences in the cost of living are more pronounced in Russia compared to the United States. However, the distribution of overall income across settlements of varying sizes is quite comparable in both countries. The article has been published in the HSE Economic Journal.