The Effects of Goal Distance and Value in Escalation of Commitment

Escalation of commitment describes individuals’ tendencies to spend resources beyond the point of rationality in order to persist in a chosen course of action, and most believe that sunk cost is the primary cause. However, it has been noted that sunk costs are confounded with progress made toward a goal, and that sunk costs do not affect individuals’ tendencies to escalate as all economic information is ignored in pursuit of the goal. Thus, the apparent escalation tendency may be a consequence of goal proximity instead of sunk costs. In Experiment 1, I show that individuals’ tendencies to escalate reflect the goal-gradient effect after controlling for the sunk costs. Experiment 2 provides a psychological process model to explain why goal-gradient influences individuals’ tendencies to escalate commitment by demonstrating that as individuals progress toward their goal, they exaggerate the value difference between the object that they are pursuing and the object that they are not pursuing. This perceived value difference, in turn, influences individuals’ tendencies to commit escalation of commitment. Results suggest a new interpretation for escalation of commitment and new approaches to guiding people to avoid it.     

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.     

Escalation and De-escalation of Commitment in Response to Sunk Costs: The Role of Budgeting in Mental Accounting

Research has traditionally assumed that people increase investment (or "escalate commitment") in response to previous investments (sunk costs). This paper presents several demonstrations which show that people will incorrectly de-escalate investment in response to sunk costs. I propose that people set mental budgets to control their resource expenditures: they set a budget for a class of expenses and track their investments against their budget. A lab study with real monetary incentives shows support for de-escalation and supports a specific rule for how people set budgets - based on the breakeven of total costs and total benefits. The budgeting process suggests that people are only likely to escalate commitment when they fail to set a budget or when expenses are difficult to track. The later part of the paper organizes the previous literature on escalation around these processes and provides additional experiments to illustrate each point. For example, I argue that previous demonstrations that have shown errors of escalation exclusively involve "incidental" investments that are difficult to track. A study in the current paper shows that people are more willing to invest time than money to salvage a monetary sunk cost and more willing to invest money than time to salvage a sunk cost of time, even when the time and money investments are of equal value. The paper concludes by discussing the rationality of escalation and de-escalation.     

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.     

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 mortality salience on escalation of commitment

Based on propositions derived from terror management theory (TMT), the current study proposes that people who are reminded of their mortality exhibit a higher degree of self-justification behavior to maintain their self-esteem. For this reason, they could be expected to stick with their previous decisions and invest an increasing amount of resources in those decisions, despite the fact that negative feedback has clearly indicated that they might be on a course toward failure (i.e., "escalation of commitment"). Our experiment showed that people who were reminded of their mortality were more likely to escalate their level of commitment by maintaining their current course of action. Two imaginary scenarios were tested. One of the scenarios involved deciding whether to send additional troops into the battlefield when previous attempts had failed; the other involved deciding whether to continue developing an anti-radar fighter plane when the enemy had already developed a device to detect it. The results supported our hypothesis that mortality salience increases the tendency to escalate one's level of commitment.     

Sunk cost of local elected representatives in situation of fiscal competition: An example of escalating commitment

Introduction

Competition between French local communities to build infrastructures to attract enterprises and residents could sometimes result in irrational public spending.

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.     

Sunk Cost,Emotion, and Commitment to Education

The influence of prior, irretrievable, investment (sunk cost) on commitment to a course of education was investigated. The moderating effects of the emotions of anger and fear over this commitment decision were also investigated. A total of 425 participants (214 male) with a mean age of 19.92 years were recruited from an undergraduate population. A computer program simulated the process of arranging to undertake a course of education. Participants were induced to feel either anger or fear and, then, invested one of three amounts of sunk cost (under budget, on budget, or over budget) to signing up for a course. Participants then decided how much time they wished to commit to this course or to an alternative, identical course with a better chance of success. Results revealed a significant sunk cost effect of prior investment on commitment to a course of education. Results also revealed that anger increased the magnitude of this sunk cost effect. Results did not reveal any effect of fear on the sunk cost effect. Theoretical implications and practical applications were discussed.     

Decision-making processes of youth

Research supports the theory that after administrators make a decision, feedback, both positive and negative, and also the administrators' perceived security vis-à-vis their position affect their level of commitment to a course of action. However, this research fails to recognize that subjects of college age playing administrators in the simulated, experimental treatments which have been presented in the research had nothing personally to lose if they made a bad decision--an orientation contradictory to the reality of most actual administrative positions. Additionally, the research ignores the interactional effects of the personality of decision makers in terms of their anxiety levels and the judgments they make. This study took both of these considerations into account by creating a decision-making situation within which prospective administrators made monetary commitments to long-term goals while their anxiety level, both as a basic personality attribute and an index of the reality of the decision-making process, was monitored under conditions of varying levels of job insecurity and resistance to their policies in relation to their decisions. Analyses revealed that contrary to the results of past research which used college students as subjects: (1) there is a significant negative correlation between levels of anxiety and commitments to previously chosen courses of action; (2) there are no significant effects of job security on commitment; and, most importantly, (3) high resistance to a policy decision leads to significantly less monetary commitments to long-term goals. The findings suggest that the basis for the contradictory results lies with the anxiety level of decision makers and the realism of experiencing a loss by making poor decisions.     

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.     

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.     

沉没成本效应的产生根源与影响因素

沉没成本效应是指决策者的决策行为因受沉没成本影响而产生的一种非理性决策现象。针对这一决策偏差的产生根源,研究者从认知、动机和神经三个角度提出了解释。沉没成本效应的影响因素包括沉没成本特性、情境因素、个体差异和文化差异等。基于先前研究存在的问题和不足,沉没成本效应的未来研究应着眼于改进研究方法,探究产生根源,关注行为沉没成本和加强应用研究。     

Escalation behavior in domains related and unrelated to decision makers' academic background

Based on Staw and Ross's (1987) analysis of escalation behavior it was hypothesized that (a) those who are involved with projects related to their academic background will tend to persist in a losing course of action and to judge the situation as reversible more than those who have to make decisions in areas unrelated to their specialty; (b) providing information that the loss is irreversible will decrease the tendency to invest additional resources. A secondary goal of the study was to examine whether there would be any difference in sunk cost decisions when the resource invested is financial as compared to time. Using a 2 × 2 × 2 factorial design, a total of 296 students were given eight different scenarios in which relatedness of decision subject-matter to academic background, reversibility of the situation, and type of resources (time or money) were the independent variables, and commitment to a course of action was the dependent variable. The results confirmed the hypotheses. No significant main effect for type of resources (time vs. money) was found. Theoretical and practical implications of the results are discussed.The authors thank Dr. Michael Hoffman for his valuable contribution in preparing this paper.     

Let It Go: Positive Affect Attenuates Sunk Cost Bias by Enhancing Cognitive Flexibility

Sunk cost bias is a pervasive problem in consumer decision making. It occurs when people continue to invest resources toward unsuccessful outcomes merely because they previously invested in them. This tendency exists because people devote too much attention to prior investments without considering how other factors may impact their decision outcome. While many suggested interventions to attenuate sunk cost bias involve altering cognitive processes, we examine an alternate affective route. Specifically, we propose that inducing positive affect attenuates sunk cost bias by naturally facilitating flexible thought processes. Across four studies, using hypothetical and real decision tasks, we find that positive affect induced in three different ways consistently attenuates sunk cost bias involving money, time, and effort investments. Further, we demonstrate that this occurs because people experiencing positive affect have enhanced cognitive flexibility. They consider more relevant decision factors and perceive sunk cost as having less of an influence on their decision outcomes. Then, in a fifth study, we show that a thought intervention promoting flexibility can attenuate consumers’ suboptimal commitment tendency in a field setting.     

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.     

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.     

The effect of accountability on susceptibility to decision errors

Recent research indicates that accountability can influence both what and how people think and might reduce decision makers' susceptibility to a variety of common judgment and choice errors. It is proposed that accountability can reduce decision errors if (1) decision makers are able to anticipate which response will be evaluated as more rational, and without concerns about accountability decision makers tend to select a different response, or (2) the normatively correct response can be identified by the more thorough and complex information processing associated with accountability. Consistent with the first proposition, four experiments demonstrated that accountability can reduce the sunk cost effect. The findings suggest that this debiasing effect reflects the subjects' expectation that they would be evaluated more favorably if they ignored sunk costs. Contrary to the second proposition, the prediction that accountable decision makers, due to their more thorough and multidimensional processing, would exhibit more consistent preferences across preference elicitation procedures was not supported in two studies. Finally, as hypothesized, accountability did not reduce a variety of decision errors for which the correct response was not known and was unlikely to be identified with more thorough information processing. These results are consistent with the notion that accountability effects in decision making are driven by the desire to be favorably evaluated and avoid criticism by others.