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.     

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.     

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.     

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。     

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.     

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.     

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.     

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 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.     

Optimism as modifier of escalation of commitment

To study whether optimism-pessimism modifies escalation of commitment, 52 undergraduates were told that they had made an unsuccessful investment, then they chose to continue or discontinue this investment. Optimism about future returns was induced in one group by varying the probability of a successful outcome from an initial low to medium, pessimism was induced in another group by varying this probability from an initial high to medium. Supporting the assumption of the manipulation, the results showed that optimistic participants preferred to continue investments whereas pessimistic participants preferred not to. As predicted, when the sunk cost increased, optimism led to escalation of commitment, whereas pessimism led to de-escalation of commitment. These effects were strengthened when probability of a successful outcome was ambiguous.     

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.     

The promise and peril of self-affirmation in de-escalation of commitment

Drawing on the motivated cognition literature, we examine how self-affirmation processes influence self-justification needs and escalation decisions. Study 1 found that individuals with a larger pool of affirmational resources (high self-esteem) reduced their escalation compared to those with fewer affirmational resources (low self-esteem). Study 2 extended these findings by demonstrating that individuals also de-escalated their commitments when they were provided an opportunity to affirm on an important value. Finally, Study 3 found that affirming on traits that were of low relevance (e.g., creativity) to an initial decision reduced escalation, but affirming on decision-relevant traits (e.g., decision-making ability) ironically increased escalation. Across three studies, using three instantiations of self-affirmations and two measures of escalation, the results highlight the potential benefits and costs of using self-affirmation as a vehicle to de-escalate commitment.     

Risks and costs of a treatment litigation: Focus on the family

Decision-making in special educational settings is always based on an implicit process of assessing risks, costs, and benefits of proposed alternative program options. We urge decision-makers to make the process explicit. The hidden costs of IEP decisions are discussed in the context of the question of using aversive procedures to treat severe destructive behavior. Some agency decisions result in significant cost transfer to or generation of risks and costs for families. The experiences of one family involved in a due process proceeding with a school system are examined for evidence of burdensome psychological, social and financial consequences.     

Looking forward and looking back: integrating completion and sunk-cost effects within an escalation-of-commitment progress decision

Currently, there are 2 conflicting frameworks with which to understand why decision makers might escalate their commitment to a previously chosen course of action: sunk costs and project completion. The author proposes that sunk costs and need to complete exert simultaneous pressures, both independent and interactive, on a decision maker's level of commitment. The responses of 340 participants were analyzed and supported a complementary relationship between the 2 predictors. In addition, sunk costs demonstrated a curvilinear influence on commitment and an interaction with level of completion that supported a Level of Completion x Sunk Cost moderation model. (A marginal utility model was not supported.) Results are discussed in terms of their relevance toward offering a complementary view of 2 potential antecedents to a decision maker's propensity to escalate his or her commitment to a previously chosen course of action.     

Extending Autonomy for Health Care Preferences in Late Life

Mechanisms for extending autonomy in financial and health care decisions (e.g., advanced directives) are being utilized more frequently. This study examined the hierarchy of documents completed, the characteristics of people completing these documents, the choice of surrogate decision-maker for health care decisions, and with whom health care decisions were being discussed in a sample of 661 persons 65 years of age and older. Comparison between people with and without documents in place suggested that cognitive impairment, level of education, and age were related to preparation of documents. Women were typically chosen as surrogate decision-makers, except in a sample of unmarried men. Surprisingly, participants reported discussing preferences for health care decisions with someone other than their preferred surrogate. There appears to be a need to promote discussion of health care preferences between care-receivers and preferred surrogates.     

Workplace Expression of Emotions and Escalation of Commitment1

These studies examined the effects of expressions of anger and guilt in the workplace on escalation of commitment. Study 1 examined the relationship between employees' reports of coworkers' emotion expressions and continued investment in a poorly performing subordinate. Study 2 tested the effects of leader expressions of anger and guilt on continued investment in a failing project. Results of both studies demonstrate that expressions of anger lead to greater escalation of commitment, while expressions of guilt lead to de‐escalation. Experimental results indicate that the effects of emotion expressions on escalation are strongest when individuals are collectively responsible for the initial decision, a finding that was mediated by feelings of psychological safety.     

No Time to Waste: Restricting Life‐Span Temporal Horizons Decreases the Sunk‐Cost Fallacy

In three studies, we examined the influence of restricted and expansive temporal horizons on the sunk‐cost fallacy. The sunk‐cost fallacy occurs when prior investments instead of future returns influence decisions about future investments. When making decisions about future investments, rational decision makers base decisions on future consequences, not already‐invested costs that are “sunk” and cannot be recovered. In Study 1, we restricted young adult college students' temporal horizons by instructing them to imagine that they did not have much longer to live; this manipulation decreased the sunk‐cost fallacy. In Study 2, we replicated Study 1 and also found that the consequences of manipulating temporal horizons were most pronounced for prior investments of time and that prior investments of time and money had different implications for the sunk‐cost fallacy, depending on the social or nonsocial decision domain. In Study 3, we manipulated temporal horizons by instructing students to imagine their time as a college student was coming to an end. Results were mostly similar to Study 2 but also suggested that focusing on one's mortality may have unique consequences. Implications of the three studies for understanding age differences in sunk‐cost decisions, interventions to improve sunk‐cost decisions, and the situations in which interventions might be most needed are discussed. Copyright © 2013 John Wiley & Sons, Ltd.     

The Counsellor as Decision-Maken Role, Treatment and Responding Decisions

As counselling develops as a specialised area, counsellors are confronted with an increasing need to be effective decision-makers. Broadly speaking, counsellor decisions are of three main types: role, treatment, and responding. The need for more rigorous role decision-making has been highlighted by the challenge of the psychological educator as contrasted with the traditional interviewer model of counsellor behaviour. Whether they are operating as interviewers or educators, counsellors need to be sensitive to their treatment and responding decisions, some of which are discussed. Barriers to effective counsellor decision-making include skills deficiencies, theoretical rigidity, and debilitating rather than enabling personal vulnerability. The notion of the counsellor as decision-maker is useful for focusing the content of counsellor training, and also leads inevitably to the notion of the counsellor as an applied scientist.