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.     

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.     

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.     

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.     

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.     

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.     

Le rôle modérateur des orientations vers les objectifs dans la relation entre l’envergure de poste et l’engagement organisationnel

This paper examines the moderating role of goal orientations (learning, performance and avoidance orientation) in the relationship between job scope (i.e., a composite measure capturing task variety, autonomy, feedback and significance) and organizational commitment. Based on a sample of 314 participants, the analyses indicate that job scope is positively related to commitment and that performance orientation and avoidance orientation act as negative moderators of job scope. Specifically, job scope was more strongly related to commitment at low levels of these traits. We discuss the importance of considering the role of employee personality in the study of the effect of work context on commitment.     

Understanding the emotional aspects of escalation of commitment: the role of negative affect

Despite the importance of understanding the emotional aspects of organizational decision making, prior research has paid scant attention to the role of emotion in escalation of commitment. This article attempts to fill this gap by examining the relationship between negative affect and escalation of commitment. Results showed that regardless of whether negative affect was measured as a dispositional trait (Neuroticism) in Studies 1 and 2 or as a transient mood state in Study 3, it was negatively correlated with escalation tendency when one was personally responsible for a prior decision. This pattern of results is consistent with the predictions derived from the coping perspective, suggesting that people seek to escape from the unpleasant emotions that are associated with escalation situations.     

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.     

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.     

内隐人格观对承诺升级的影响——成功期望的中介效应

研究旨在探讨内隐人格观对承诺升级的影响以及期望在其中的中介作用。研究1比较了个体的实体启动、渐变启动和无启动对照三种条件下,个体的承诺升级倾向是否受不同启动类型的影响。结果发现,被启动渐变论的被试与无启动和实体启动的被试相比,前者表现出更多的承诺升级倾向。研究2使用情景模拟任务,分析了个体不同内隐人格观与承诺升级的关系,并在此基础上探讨了成功期望的中介作用。结果发现:(1)个体越倾向渐变论则更多的产生承诺升级行为;(2)成功期望在内隐人格观与承诺升级的关系中起完全中介作用。     

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.     

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.     

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.     

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.     

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。     

The Effects of Self-Efficacy on Behavior in Escalation Situations

Two experiments were conducted to investigate the hypothesis that perceptions of self-efficacy influence, in various ways, behavior in escalation situations. Self-efficacy beliefs for finding oil were measured for 527 petroleum geologists as they decided, at increasing levels of negative feedback in the form of dry wells, whether to persist with an unproductive venture in petroleum exploration. Experiment 1 employed a within-subject design and found a significant main effect of both negative feedback and initial self-efficacy. Differences in intentions to escalate between low and high self-efficacy individuals were apparent at all levels of negative feedback. No moderating effect of self-efficacy, however, was discernible. Experiment 2 employed a between-subjects design and multiple regression analysis. Like Experiment 1, Experiment 2 revealed a significant main effect of negative feedback and initial self-efficacy. Post-feedback self-efficacy was found to mediate the effects of negative feedback on the escalation tendency. Implications of these results for the self-efficacy and escalation literatures are discussed.