Negativity Bias or Hot Hand Effect? Linking Performance Gaps and Innovation

• In Event: Information, Performance Outcomes, and Change in the Public Sector

Abstract

Public management scholars have increasingly interested in examining how performance gaps, defined as the difference between an organization’s actual performance and aspirations, shape organizational behavior. The emerging empirical literature on performance gaps and organizational behavior suggests organizations respond to performance gaps, and more so to performance shortfalls. We still know little, however, under what circumstances such negativity bias may occur, and if prior successful experiences affect innovation activities equivalently. Systematic studies on the influence of performance gaps, moreover, are still sparse and rarely track innovation activities by the same set of organizations over a long time period. In this proposed study, we offer a Bayesian behavioral model of performance gaps and innovation to test the competing hypotheses. We conceptualize innovation activities as decision outcomes inherent in adaptive assessment of performance gaps. On the one hand, organizations might become more likely to pursue innovation as to solve performance problems, and the motivation of change attenuates as the organization meets or exceeds its performance aspirations. Alternatively, innovation activities can be understood as a hot hand bias. That is organizations become more likely to innovate because they have been successful. Prior experience in exceeding performance aspirations creates both the motivation of reproducing success and slack resources for exploratory innovation, essentially a positive feedback system.
Drawing from the US health care context, we test these competing hypotheses using a panel study of 4,000+ American hospitals across the three sectors from FY2008 to 2018. We track American hospitals’ innovation activities in the past decade along three dimensions: (1) service innovation measured based on hospitals’ adoption of new health care delivery methods, (2) technology innovation measured as hospitals’ adoption of new medical technology, and (3) organizational innovation, measured based on the adoption of hospital innovation centers and their participation in Accountable Care Organizations (ACOs). We link these innovation activities to two types of performance gaps: (1) historical performance gaps that compare hospitals’ current and past performance records, and (2) social performance gaps that compare a hospital’s current performance to that of its peers. Controlling for hospitals’ organizational characteristics and patients’ demographic factors, we use a difference-in-difference (DID) design and dynamic panel regression models to explore the causal links between historical and social performance gaps and changes in innovation activities.

Authors

• Ling Zhu, University of Houston

• Ken Meier, American University