Behavioral Causality Orientations and Investment Decisions Following Negative Feedback

Individual differences in the locus of causality for behavior are seldom considered in tests of regulatory events (e. g., feedback and coercion). This study examined the relationship between Deci and Ryan's (1985a) causality orientation constructs and decision makers' behavioral intention responses to negative feedback following an initial decision. A laboratory experiment involved 98 Singaporean business students in a commitment escalation context in which sunk costs for an initial investment failure could be recovered by reinvesting in that prospect in preference to selecting an alternative that had previously performed better. Consistent with various theories of the escalation effect, in which subjects responsible for prior negative outcomes tend to reinvest in the initially chosen project, control orientation was positively associated with reinvestment and impersonal orientation was negatively related to reinvestment. The influence of personality on reinvestment/withdrawal behavior was moderated by the experimental condition of responsibility for the initial sunk cost. We discuss the implications of these findings for the construct validity of the causality orientations, the role of personality in commitment escalation, and the important role that individual differences in perceptions of regulatory events may play in determining behavior.     

Escalation of Commitment and the Framing Effect: An Empirical Investigation

Research and theory are reviewed which consider two decision biases: escalation of commitment and decision framing. Some authors (Bazerman, 1986; Whyte, 1986) have suggested that escalation of commitment may be explained by the decision framing used in the research paradigms. A study was conducted which simultaneously manipulated both responsibility for a prior decision and decision frame. Results show a main effect on resource allocation for responsibility and no effect for decision frame. A follow-up study found that amount of information provided systematically affected the framing bias, and that when responsibility was added to a large amount of contextual information, the framing effect became nonsignificant. These results suggest a need to further examine the boundary conditions of framing.     

The two faces of conscientiousness: duty and achievement striving in escalation of commitment dilemmas.

The author proposes that 2 facets of conscientiousness, duty and achievement striving, affect decision makers in escalation of commitment dilemmas in opposing ways, thus masking the predictive ability of a broad measure of conscientiousness. It is proposed that duty is associated with an other-centered orientation and that achievement striving is associated with a self-centered orientation. Analyses of decisions from 360 respondents showed that duty was associated with a deescalation of commitment, achievement striving was associated with an escalation of commitment, and the broad measure of conscientiousness was unassociated with commitment. The author advocates the utility of understanding potential self-centered versus other-centered aspects of the criterion of interest when conducting personality-based research.     

The Effect of Goal Difficulty on Escalation of Commitment

Escalation of commitment to a failing course of action is a problem in behavioral decision making that occurs across a wide range of social contexts. In this research, we show that examining escalation of commitment from a goal setting theory perspective provides fresh insights into how goal difficulty influences escalation of commitment. Specifically, through a series of two experiments, we found a curvilinear relationship between goal difficulty and post‐feedback goal commitment, which was mediated by valence and expectancy associated with goal attainment. In turn, it is commitment to goals that leads individuals to continue a previous course of action despite negative feedback. Copyright © 2014 John Wiley & Sons, Ltd.     

Justification and the Processing of Information

This study explores, within the context of escalating commitment, how ambiguous information affects decision making. By analyzing subjects' looking times and allocation decisions, we examined the process by which individuals abstract and use information to arrive at their decisions. We found that subjects spent more time processing ambiguous information than they did either purely optimistic or purely pessimistic information. This tendency to process ambiguous information longer increased when the decision maker was not exonerated from blame for the failure of an original decision; presented with ambiguous information, nonex-onerated subjects also made smaller allocations than did exonerated subjects. In this study, the predominant effect of felt responsibility on allocations was withdrawal rather than escalation. Our results suggest that the ambiguity of information about the future plays an important role in escalation and that the combination of responsibility and failure may affect allocations only when the prospective information is ambiguous.     

The Influence of Compensation Method and Disclosure Level on Information Search Strategy and Escalation of Commitment

In this study we examined the extent to which compensation method and public disclosure influenced information search strategy and escalation of commitment. A laboratory experiment involving 182 student subjects employed a 3 (compensation: no-pay, salary, and contingent) by 2 (disclosure level: public and private) fully randomized, crossed design. Results show that in light of negative feedback concerning performance results of an investment portfolio, subjects whose initial allocation decisions were announced publicly reduced their search for prospective information, increased the search for retrospective information, and exhibited greater escalation of commitment than subjects who did not announce their initial investment strategy. The search for retrospective information and escalation of commitment was monotonically higher across the no-pay, salary, and contingent pay conditions respectively, while the search for prospective information decreased correspondingly. This study provides evidence that escalation of commitment is positively related to the search for retrospective information and negatively related to the search for prospective information. The results obtained from this experiment complement and extend prior work in the areas of accountability, cognitive dissonance and escalation of commitment. © 1997 by John Wiley & Sons, Ltd.     

Biased information processing in the escalation paradigm: information search and information evaluation as potential mediators of escalating commitment

Escalation of commitment denotes decision makers' increased reinvestment of resources in a losing course of action. Despite the relevance of this topic, little is known about how information is processed in escalation situations, that is, whether decision makers who receive negative outcome feedback on their initial decision search for and/or process information biasedly and whether these biases contribute to escalating commitment. Contrary to a widely cited study by E. J. Conlon and J. M. Parks (1987), in 3 experiments, the authors found that biases do not occur on the level of information search. Neither in a direct replication and extension of the original study with largely increased test power (Experiment 1) nor under methodologically improved conditions (Experiments 2 and 3) did decision makers responsible for failure differ from nonresponsible decision makers with regards to information search, and no selective search for information supporting the initial decision or voting for further reinvestment was observed. However, Experiments 3 and 4 show that the evaluation of the previously sought information is biased among participants who were responsible for initiating the course of action. Mediation analyses show that this evaluation bias in favor of reinvestment partially mediated the responsibility effect on escalation of commitment.     

Escalate shamefully,de‐escalate angrily or gratefully: The influence of discrete emotions on escalation of commitment

Decision makers often tend to escalate their commitment when faced with a dilemma of whether to continue a losing course of action. Researchers recently began to investigate the influence of discrete emotions on this decision tendency. However, this work has mainly focused on negative emotions and rarely considered positive emotions, to say nothing of comparing the effects of both of them simultaneously. The current study addresses this need by presenting the results of three experiments that examined the effects of four emotions of both positive and negative valences in escalation situations. Experiment 1 investigated the relationships of three trait emotions (hope, shame, and anger) and escalation of commitment. Experiments 2 and 3 examined the effects of three induced emotions (anger, shame, and gratitude) on escalation of commitment in a student sample and an employee sample, respectively. The results revealed that the effects of discrete emotions in escalation situations are mainly due to their associated differences on the appraisal dimension of responsibility that is related to escalation situations rather than their valence. The theoretical and practical implications are discussed.     

Escalation of commitment with transparent future outcomes

A frequent case of irrational decision making is the tendency to escalate commitment to a chosen course of action after unsuccessful prior investments of money, effort, or time (sunk costs). In previous research it is argued that escalation does not occur when future outcomes and alternative investments are transparent. Inconsistent with this argument, in an experiment in which undergraduates were presented fictitious investment problems with sunk costs, escalation was demonstrated when full information was given about investment alternatives and estimates of future returns. Thus, it is indicated that people may escalate despite knowing that it will not make them economically better off. A more comprehensive understanding of escalation requires disentangling people's noneconomic reasons for escalation.     

The effect of decision risk and project stage on escalation of commitment

We investigate the joint effects of decision risk and the stage of project completion on escalation of commitment. In two experiments, we demonstrate that the effect of decision risk is moderated by project stage such that the decision risk has the strongest effect on escalation of commitment at the intermediate stage of project completion. This is due to the dynamic influences underlying escalation of commitment. Whereas the need for project information influences resource commitment at the initial stage of a project, the need for project completion affects resource allocation at the terminal stage. In contrast, motivation to commit resources is disproportionately low at the intermediate stage since both the need for project information and the need for project completion are relatively weak. As such, the decision to commit resources is most sensitive to the moderating effect of decision risk when the project is about half complete.     

The role of anticipated regret in escalation of commitment

This research tests the general proposition that people are motivated to reduce future regret under escalation situations. This is supported by the findings that (a) escalation of commitment is stronger when the possibility of future regret about withdrawal is high than when this possibility is low (Studies 1a and 1b) and (b) escalation of commitment increases as the net anticipated regret about withdrawal increases (Studies 2a and 2b). Furthermore, the regret effects in the 4 studies were above and beyond the personal responsibility effects on escalation. This research indicates that people in escalation situations are simultaneously influenced by the emotions they expect to experience in the future (e.g., anticipated regret) and by events that have happened in the past (e.g., responsibility for the initiating previous decision).     

In Search of the Underlying Mechanism of the Disposition Effect

Using comprehensive data from the Finnish stock market, we assess the explanatory value of the three most commonly cited explanations for the disposition effect: prospect theory, belief in mean reversion, and escalation of commitment. In general, the results provide evidence for the presence of the disposition effect. More importantly, the effect appears to be significantly more pronounced when investors are personally responsible for the initial investment decision. This finding suggests that investor behavior is influenced above all by self‐justificatory concerns, an interpretation that is consistent with the escalation of commitment‐based explanation of the disposition effect. Copyright © 2011 John Wiley & Sons, Ltd.     

Escalating Commitment in Individual and Group Decision Making: A Prospect Theory Approach

An explanation for escalating commitment based on prospect theory (Kahneman & Tversky, 1979) is extended to the group level of analysis. Hypotheses concerning the likelihood and degree of escalating commitment of individuals and groups were derived from the model and tested using six investment decision scenarios. Subjects responded to decision dilemmas in which substantial funds have been invested in a failing course of action. Subsequent investment would likely exacerbate although it could potentially reverse the situation. Consistent with hypotheses derived from the model, escalating commitment occurred in both individual and group decision making. Group decision making amplified trends apparent at the individual level in terms of the frequency with which escalation occurred and its severity. Although the results are consistent with a prospect-theory-based explanation of escalating commitment at two levels of analysis, support for the self-justification approach was also found. Motives for self-justification, however, do not appear to be a necessary condition for escalation to occur.     

Escalation research: providing new frontiers for applying behavior analysis to organizational behavior

Decision fiascoes such as escalation of commitment, the tendency of decision makers to "throw good money after bad," can have serious consequences for organizations and are therefore of great interest in applied research. This paper discusses the use of behavior analysis in organizational behavior research on escalation. Among the most significant aspects of behavior-analytic research on escalation is that it has indicated that both the patterns of outcomes that decision makers have experienced for past decisions and the patterns of responses that they make are critical for understanding escalation. This research has also stimulated the refinement of methods by researchers to better assess decision making and the role reinforcement plays in it. Finally, behavior-analytic escalation research has not only indicated the utility of reinforcement principles for predicting more complex human behavior but has also suggested some additional areas for future exploration of decision making using behavior analysis.     

Prospect Theory Predictions When Escalation Is Not the Only Chance to Recover Sunk Costs

Two experiments tested the effect of risk of alternative investment opportunities on decision behavior in an escalation context. In the first experiment (n = 170), the risk of the reinvestment option, which had been unsuccessful and incurred a sunk cost, was held equal to that of an alternative investment project. Responsibility for the previous decision was manipulated between these subjects. Subjects were required to choose between the reinvestment option and the alternative. Responsible subjects demonstrated classic reinvestment (escalation) tendencies, and nonresponsible subjects exhibited a significant tendency to avoid reinvestment. Subjects in the second experiment (n = 195) completed the same decision task and were also assigned to high and low responsibility conditions. In this experiment the risk of investing further in a previously chosen project, relative to the risk of the alternative project, was manipulated. Those subjects who were responsible for the first decision (a) demonstrated no preference for or against continued pursuit of the initial project (i.e., there was no escalation tendency) and (b) preferred the less risky of the second investments, regardless of whether it was or was not the initially chosen project. Nonresponsible subjects showed no risk preference or proclivity for reinvestment. The results of these experiments suggest that salient information concerning relative risk dominates the effect of prior performance information when alternative investments are considered. We discuss the implications of these findings for decision theory and for methodology in commitment escalation research.     

A conceptualisation of task dimensions affecting escalation of commitment

People frequently continue an investment despite a negative outcome or sunk cost. Such irrational persistence in a losing course of action has been termed escalation of commitment. Although several explanations of escalation of commitment have been proposed, none of them accounts for all determinants that have been empirically demonstrated. Based on a review of previous research, a conceptualisation is introduced of how escalation of commitment is affected by 4 task dimensions: type and nontransparency of decision goal, nontransparency of sunk costs, time course of sunk costs, and accountability. A more inclusive theory that subsumes escalation of commitment is offered as an alternative that may be developed to account for the effects of the task dimensions.     

The Effects of Feedback Equivocality on Escalation of Commitment: An Empirical Investigation of Decision Dilemma Theory1

The effects of feedback equivocality on escalation of commitment were examined in a laboratory study. Subjects had multiple opportunities to allocate money to market a software product. During the initial phase, subjects received feedback that was of either low or high equivocality. Half of the subjects in each equivocality level were given a standard by which to judge the feedback. In the second phase, all subjects received negative feedback. Consistent with Bowen's (1987) decision dilemma theory, subjects who received low equivocality feedback did not escalate allocations, and subjects who received high equivocal feedback escalated allocations. The presence of a standard or goal attenuated escalation. These results are consonant with a dynamic, temporally based account of escalation and are discussed in a synthesis of the literatures in behavior analysis, economics, forecasting, and psychology.     

Does a Tired Mind Help Avoid a Decision Bias? The Effect of Ego Depletion on Escalation of Commitment

In this research, we investigated the effect of ego depletion on escalation of commitment. Specifically, we conducted two laboratory experiments and obtained evidence that ego depletion decreases escalation of commitment. In Study 1, we found that individuals were less susceptible to escalation of commitment after completing an ego depletion task. In Study 2, we confirmed the effect observed in Study 1 using a different manipulation of ego depletion and a different subject pool. Contrary to the fundamental assumption of bounded rationality that people have a tendency to make decision errors when mental resources are scarce, the findings of this research show that a tired mind can help reduce escalation bias.