Weighing the past and the future in decision making

Prior irreversible investments of money, time, or effort referred to as sunk costs frequently lead to decisions to continue a chosen course of action despite that this is irrational. With the aim of demonstrating that such escalation of commitment is a special case of a more general phenomenon, two experiments were carried out employing undergraduates as participants. Experiment 1 showed for fictitious personal and business investment scenarios that both prior losses and gains (sunk outcomes) affected choices to continue or discontinue the investment. In Experiment 2 the effect of sunk outcomes was reduced although not eliminated by a monetary bonus that in one condition depended on the future outcomes of the second gamble in two-stage gambles, in another condition on the future returns in personal investment scenarios. In support of a more inclusive theory subsuming escalation of commitment, the decisions were affected by both past and future outcomes and both gains and losses.     

Impact of decision goal on escalation

This research investigates the sunk-cost effect or escalation defined as the irrational tendency to choose to continue to invest money, time, or effort following unsuccessful investments. Building on previous research demonstrating a loss-sensitivity principle in sequential decision making, the hypothesis was proposed that a loss-minimization goal would lead to stronger effects of sunk outcomes (prior gains and losses) than would a gain-maximizing goal. The hypothesis was investigated in three experiments with undergraduates responding to investment decision scenarios. Although the tendency to continue investments was always larger for gain-maximizing than for loss-minimizing goal instructions, the sunk-outcome effect was stronger in the former case. However, when the decisions were personal and concerned lower stakes rather than business investments involving large amounts of money, the expected stronger effect of sunk outcomes was found for loss-minimizing goal instructions. Another finding was that the expected value was never ignored, thus suggesting that future research should focus on the joint effects of the expected value and sunk outcomes.     

Dual support in contract workers' triangular employment relationships

This study investigated the interplay between perceived investment in contract worker development by the client organization and contract workers' perceived organizational support from their temporary employment agency. A study among 2021 contract workers from three temporary employment agencies in Norway showed that the relationships between perceived investment in contract worker development and task and contextual performance were moderated by contract workers' perceived organizational support from the agency. The form of the moderations revealed no positive relationships between perceived investment in contract worker development and performance unless the perceived investment by the client organization was accompanied by higher levels of perceived support from the temporary employment agency. These findings suggest that client organizations, which hire from temporary employment agencies that provide support to their contract workers, will get the most out of their investments in these contract workers' development.     

Status Quo Effects in Decision-Making about Training and Career Development

Within the context of the Theory of Work Adjustment and Image Theory, two studies examined status quo effects in “mini” decisions about training and career development. In Study 1 (N= 78), 32% of the employees demonstrated a status quo effect in that they were not considering any training or skill development options. As predicted by consistency theory, positive information was considered more important than negative information among the non status quo group, particularly for the non status quo alternative. In Study 2 (N= 114) training was given a low priority, although a “major change” frame of reference did increase the priority accorded to training to improve future job prospects. Results are discussed in relation to theoretical issues and the wider implications of encouraging investment in skill development where outcomes are delayed.     

IS MATCHING INNATE?

Experimentally naive mice matched the proportions of their temporal investments (visit durations) in two feeding hoppers to the proportions of the food income (pellets per unit session time) derived from them in three experiments that varied the coupling between the behavioral investment and food income, from no coupling to strict coupling. Matching was observed from the outset; it did not improve with training. When the numbers of pellets received were proportional to time invested, investment was unstable, swinging abruptly from sustained, almost complete investment in one hopper, to sustained, almost complete investment in the other-in the absence of appropriate local fluctuations in returns (pellets obtained per time invested). The abruptness of the swings strongly constrains possible models. We suggest that matching reflects an innate (unconditioned) program that matches the ratio of expected visit durations to the ratio between the current estimates of expected incomes. A model that processes the income stream looking for changes in the income and generates discontinuous income estimates when a change is detected is shown to account for salient features of the data.     

投资决策进化心理学的研究：预期的私人资金分配和父母对子女的差异性精力投入

投资决策的进化心理学研究着眼于辨认人类获得进化适应的特定环境中经常出现的典型性风险,探寻为了应对这些风险而进化出的信息处理机制,并验证现时的社会因素和个体因素对这些心理机制的激活或抑制作用。在研究一中,被试预测了与自己同龄的男人或女人如何分配一笔中彩的奖金给自己和其他可能的受益人。研究发现：（1）钱数的分配大体由亲缘关系的疏密程度决定;（2）两性被试都假想男性比女性更慷慨,但实际上男性表现得更自利;（3）女性被试预测男性中奖人的金钱分配比男性被试预测女性中奖人的金钱分配更为准确;（4）女性被试的受益人更多,分享的社会范围更广。研究二探讨了父母对子女投入精力的不同取决于家庭的相对财富而非绝对财富的进化心理学假说。用哺乳与否和生育间隔期为测量指标,研究结果显示：（1）家庭实际收入影响父母对子女的总投入;（2）与邻里家庭相比,父母对于自己家庭相对收入的认知影响了对子女有别的差异性精力投入。基于男性普遍在财富和生育数量上比女性有更大的变异度,投资儿子比投资女儿更具博弈性。两项研究表明,人类的理性决策既受限于社会关系又适应于相对的财富状况     

Economic Utility of Training Programs

In economic terms, training projects represent a major outlay for many corporations. In spite of the growing need to evaluate the cost-effectiveness of training programs in organizations, such cost-benefit analyses are rarely conducted. Moreover, the extant conceptual approaches and mathematical formulas typically used for this purpose produce inaccurate estimates of the economic utility of training programs for organizations.An amended approach to this procedure is elaborated and its benefits demonstrated. The proposed model regards any potential plan as an investment project that should be evaluated in a similar way to the assessment of other investment options. Thus, it is recommended that a training project be considered only if its potential real, post-tax rate of return exceeds the real, post-tax cost of capital to the firm, subject to the unique features of investment in human capital. This process could improve the potential financial benefits to the firm, from investment in training.     

Live training versus e‐learning to teach implementation of listener response programs

Discrete‐trial teaching is an effective teaching procedure that must be implemented with high integrity to produce optimal learning. Behavioral Skills Training (BST) has proven effective for staff training; however, BST is time and labor intensive. Computer‐based instruction (CBI) programs may provide a more efficient and cost‐effective alternative to live training if the CBI program is as effective as BST in producing accurate implementation. The current study compared CBI to BST to train novice undergraduate students to conduct discrete‐trial teaching. Participants were randomly assigned to one of the two conditions and assessed prior to and after the completion of training. Results indicated that although both BST and CBI were effective at training participants to implement discrete‐trial teaching, BST was slightly but significantly more effective whereas CBI quickly created a return on the investment of product development.     

Promoting de-escalation of commitment: a regulatory-focus perspective on sunk costs

People frequently escalate their commitment to failing endeavors. Explanations for such behavior typically involve loss aversion, failure to recognize other alternatives, and concerns with justifying prior actions; all of these factors produce recommitment to previous decisions with the goal of erasing losses and vindicating these decisions. Solutions to escalation of commitment have therefore focused on external oversight and divided responsibility during decision making to attenuate loss aversion, blindness to alternatives, and justification biases. However, these solutions require substantial resources and have additional adverse effects. The present studies tested an alternative method for de-escalating commitment: activating broad motivations for growth and advancement (promotion). This approach should reduce concerns with loss and increase perceptions of alternatives, thereby attenuating justification motives. In two studies featuring hypothetical financial decisions, activating promotion motivations reduced recommitment to poorly performing investments as compared with both not activating any additional motivations and activating motivations for safety and security (prevention).     

Building a business case for developing supportive supervisors

A key theme from the previous commentaries is that the business case for developing supportive supervisors needs to be stronger for organizations to make the investments necessary to develop supportive supervisors. There are time constraints and other practical considerations for those in the role of supervisor that may get in the way of supportive supervision unless supervisor support is recognized as a valuable business expense (Ellinger, 2013; Zeni, MacDougall, Chauhan, Brock, & Buckley, 2013). As such, in our response to the commentaries, we present the findings of an additional analysis based on the data from our original sample that examine the relationship between supportive supervision (as rated by subordinates) and supervisor performance and promotability (as rated by the supervisor's boss). We provide evidence that highly supportive supervisors are seen as more promotable and as better performers than are supervisors who are less supportive. Having empirical evidence that shows that upper‐level leaders believe that supportive management contributes to the performance of supervisors is important because upper‐level leaders are the ones making decisions in organizations about what is valued and promoted.     

Wearing out your shoes to prevent someone else from stepping into them: Anticipated regret and social takeover in sequential decisions

Comparisons with counterfactual outcomes can influence choices in sequential decisions. We examine the effect of anticipated regret, and “social takeover”—the knowledge that someone else might take over an investment one has abandoned—on persistence on an investment task. Some participants received feedback about what would have happened if they had continued investing and others did not. Some knew that another person had the opportunity to pick up their investment where they left off and others did not. Data collected from 84 dyads showed effects of both experimental manipulations. Participants invest longer, on average, when another person could take over from their previous investments, and when feedback was provided. Both anticipated regret and social takeover appear to increase the tendency to stick with an investment.     

The Value of Task Conflict to Group Decisions

We tested the ability of task conflict to improve the quality of decisions made by four‐person groups. In a choice between two entrepreneurial investments, conflict was created by endowing group members with a preference for either one investment or the other. Because the decision was subjective, decision quality was necessarily judged by a process criterion, the reduction in the biased evaluation of new information to support the leading alternative. Groups in which conflict was installed exhibited less bias than individuals, who themselves exhibited less bias than groups without such conflict. Regardless of whether conflict was installed, groups that reached an early consensus exhibited the greatest information bias, while groups that experienced sustained conflict exhibited the least. Before achieving consensus, information bias was not significantly different from zero, but then rose steadily after that agreement. This result identifies one specific mechanism by which conflict can improve the process of group decisions. Copyright © 2011 John Wiley & Sons, Ltd.     

Industrial and Biological Analogies Used Creatively by Business Professionals

The objective of this study was to test the effect of far-field industrial (i.e., man-made) versus biological analogies on creativity of business professionals from two organizations engaged in the idea generation phase of new product development. Psychological effects, as reflected in language use, were measured via computerized text analysis of transcribed audio recordings of ideation sessions. Effects on quality of product concepts generated by participants were measured via analysis of 15 judges’ multidimensional creativity ratings. Though psychological effects were undetectable, results suggest presenting new product development professionals with biological analogies as ideation stimulus increases novelty and may increase elegance of solutions generated. Presenting far-field industrial analogies increases relevance and effectiveness of solutions generated. This study serves as a source of evidence that biomimicry (design by analogy to biology) is an effective approach to product innovation. It also shows that there is an important role for far-field industrial analogies in stimulating ideas during new product development. A strategically designed brainstorming session should prime innovators with both far-field industrial and biological analogies to generate maximally creative ideas.     

Mental budgeting versus marginal decision making: training,experience and justification effects on decisions involving sunk costs

Many studies have shown that individuals make economically irrational decisions by using, rather than ignoring, sunk cost information. In this study, the effects of relevant academic training, financial experience and decision justification on investment decisions involving sunk costs were examined. Data on both the process (strategy) and outcome of the decisions were collected. The results indicate that practicing Certified Public Accountants (CPAs), Masters of Business Administration students (MBAs) and undergraduate accounting students perform better than undergraduate psychology students. The level of training, as measured by the number of college courses in managerial accounting, was found to be positively correlated with performance, while the level of experience, as measured by years of financially‐related work, was not. Justification was found to improve decisions only for those participants with significant work experience (MBAs and CPAs). Strategies used in this type of decision were examined with the surprising finding that economically rational decisions can be made even if sunk costs are not ignored. Copyright © 2007 John Wiley & Sons, Ltd.     

Positive Illusions and Forecasting Errors in Mutual Fund Investment Decisions

This study examines the portfolio allocation decisions of 80 business students in a computer-based investing simulation. Our goal was to better understand why investors spend so much time and money on actively managed mutual funds despite the fact that the vast majority of these funds are outperformed by pas sively managed index funds. Participants' judgments and decisions provided evidence for a number of biases. First, most participants consistently overestimated both the future perfor mance and the past performance of their investments. Second, participants overestimated the intertemporal consistency of portfolio performance. Third, participants were more likely to shift their portfolio allocation following poorer performance than following better performance, and this tendency had a negative impact on portfolio returns. We speculate that these biases in investor behavior may contribute to suboptimal investment decisions in real financial markets.     

Sunk-cost effects on purely behavioral investments

Although the sunk-cost effect is a well-documented psychological phenomenon in monetary investments, existing literature investigating behavioral investments (e.g., time, effort) has not replicated this effect except when such investments relate to monetary values. The current explanation for this discrepancy proposes that purely behavioral sunk-cost effects are unlikely to be observed because they are difficult to book, track, and balance in a mental account. Conversely, we argue that, through an effort-justification mechanism, people account for the amount of behavioral resources invested when selecting an alternative, in which case they may fall prey to purely behavioral sunk-cost effects. The results of two experiments support this prediction. Because many decisions involve behavioral investments, behavioral sunk-cost effects should be pervasive psychological phenomena.     

The Effect of Multiple Reference Points and Prior Gains and Losses on Managers′ Risky Decision Making

This study examines the impact of two contextual features of decision settings on managers′ risky behavior. Considerable research indicates that decision makers exhibit risk avoiding or risk taking behavior depending upon whether options are viewed as gains or losses with respect to a given reference point. We argue in this paper that multiple points of reference are important determinants of risky behavior in many decision contexts, and that research should explicitly consider their effect to fully understand and predict risky behavior. The analysis of contextual features is extended to consider the impact of prior gains and losses in the second part of the paper. Seventy-two professional corporate managers participated in two experiments that involved a corporate investment decision setting. The setting exemplifies a context that has both multiple important points of reference and prior gains and losses. The data indicated that the presence of multiple relevant reference points results in a complex pattern of risky behavior, where managers′ decisions to accept or avoid risk were affected by the relative positions of risky alternatives with respect to two important points of reference. In particular, a mixture of risk taking and risk avoiding occurred for options between the relevant reference points. The managers were also found to be more willing to accept risk after experiencing a prior gain as opposed to a prior loss. These findings point to the importance of considering such task characteristics when attempting to predict and understand risky behavior across a variety of task contexts.     

Regulatory focus and investment decisions in small groups

Regulatory Focus Theory was applied to small interactive groups. Based on previous research, it was expected that groups with a promotion focus would discuss gain-relevant information, whereas groups with a prevention focus would be concerned with potential losses. Furthermore, promotion groups were expected to make riskier decisions than prevention groups. Regulatory focus was manipulated by rewarding good or penalizing poor group performance on a preliminary task. Subsequently, three-person groups discussed several investment funds and made a consensual investment decision. Results supported the hypotheses and suggested that regulatory focus requires time to exert its influence in groups.