The Evaluator's Option: Identity, Performance, and Endogenous Reference Group Selection

• In Event: 026 - Regular Session. Economic Sociology: Categories, Category Combination, and Evaluation in Markets

Abstract

Recent research shows that audiences respond to organizational performance in ways that seem anomalous according to prior theory. In this paper we propose that variations in the extent to which an organization conforms to a known market category affects the way audiences construct reference groups—whether broad or narrow, ex ante or ex post—and thus shapes their response to organizational performance. In an experiment on buying, selling, and evaluating the performance of a certain kind of financial instrument, we show that positive (negative) performance induces audiences to endogenously select broad (narrow) reference groups when evaluating atypical organizations. Audience's prior sentiment towards the organization they are evaluating—specifically their feelings of commitment—further moderate this relationship. Our results have several implications for theories related to organizational identity and identification, social comparison, and judgment and decision-making.

Authors

• Edward Bishop Smith, Northwestern University

• Heewon Chae, University of Michigan