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.