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The econometrics and behavioral economics of escalation of commitment: a re-examination of Staw and Hoang's NBA data

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  • Camerer, Colin F.
  • Weber, Roberto A.

Abstract

We examine the phenomenon of escalation from an economist's perspective, emphasizing explanations which do not rule out rational behavior on the part of firms or agents. We argue that escalation cannot be established as a separate phenomenon unless these possible alternative explanations are properly accounted for. We present Staw and Hoang's (1995) study of NBA data as an instance of where evidence of escalation might be overturned upon more careful analysis. After performing several tests of our alternative explanations, we find that evidence of escalation persists, although it is weaker both in duration and magnitude.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 39 (1999)
Issue (Month): 1 (May)
Pages: 59-82

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Handle: RePEc:eee:jeborg:v:39:y:1999:i:1:p:59-82

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  1. Heath, Chip, 1995. "Escalation and De-escalation of Commitment in Response to Sunk Costs: The Role of Budgeting in Mental Accounting," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 62(1), pages 38-54, April.
  2. McCarthy, Anne M. & Schoorman, F. David & Cooper, Arnold C., 1993. "Reinvestment decisions by entrepreneurs: Rational decision-making or escalation of commitment?," Journal of Business Venturing, Elsevier, vol. 8(1), pages 9-24, January.
  3. Zwiebel, Jeffrey, 1995. "Corporate Conservatism and Relative Compensation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(1), pages 1-25, February.
  4. Scharfstein, David. & Stein, Jeremy C., 1988. "Herd behavior and investment," Working papers WP 2062-88., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Weber, Martin & Camerer, Colin F., 1998. "The disposition effect in securities trading: an experimental analysis," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 33(2), pages 167-184, January.
  6. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers, University of California at Berkeley 92-199, University of California at Berkeley.
  7. Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, INFORMS, vol. 39(1), pages 17-31, January.
  8. Nardinelli, Clark & Simon, Curtis, 1990. "Customer Racial Discrimination in the Market for Memorabilia: The Case of Baseball," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(3), pages 575-95, August.
  9. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(6), pages 1105-34, December.
  10. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 35(1), pages 124-140, February.
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Cited by:
  1. Leif Brandes & Marc Brechot & Egon Franck, 2011. "The Temptation of Social Ties: When Interpersonal Network Transactions Hurt Firm Performance," Working Papers, University of Zurich, Institute for Strategy and Business Economics (ISU) 00159, University of Zurich, Institute for Strategy and Business Economics (ISU), revised 2012.
  2. Daniel Friedman & Kai Pommerenke & Rajan Lukose & Garret Milam & Bernardo A. Huberman, 2004. "Searching for the Sunk Cost Fallacy," Experimental, EconWPA 0407007, EconWPA.
  3. Pedro Robalo & Rei S. Sayag, 2012. "Information at a Cost: A Lab Experiment," Tinbergen Institute Discussion Papers 12-143/VII, Tinbergen Institute.
  4. Grund, Christian & Höcker, Jan & Zimmermann, Stefan, 2010. "Risk Taking Behavior in Tournaments: Evidence from the NBA," IZA Discussion Papers 4812, Institute for the Study of Labor (IZA).
  5. repec:dgr:uvatin:2012143 is not listed on IDEAS
  6. Swee-Hoon Chuah & Robert Hoffmann & Jeremy Larner, 2011. "Escalation Bargaining: Theoretical Analysis and Experimental Test," Discussion Papers, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham 2011-05, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  7. Borland, Jeff & Lee, Leng & Macdonald, Robert D., 2011. "Escalation effects and the player draft in the AFL," Labour Economics, Elsevier, Elsevier, vol. 18(3), pages 371-380, June.
  8. Dennis Coates & Babatunde Oguntimein, 2010. "The Length and Success of NBA Careers: Does College Production Predict Professional Outcomes?," International Journal of Sport Finance, Fitness Information Technology, vol. 5(1), pages 4-26, February.
  9. Krähmer, Daniel & Stone, Rebecca, 2005. "Regret in Dynamic Decision Problems," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 71, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  10. Cade Massey & Richard Thaler, 2005. "Overconfidence vs. Market Efficiency in the National Football League," NBER Working Papers 11270, National Bureau of Economic Research, Inc.
  11. Hoelzl, Erik & Loewenstein, George, 2005. "Wearing out your shoes to prevent someone else from stepping into them: Anticipated regret and social takeover in sequential decisions," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 98(1), pages 15-27, September.

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