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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. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  2. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-34, December.
  3. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, vol. 35(1), pages 124-140, February.
  4. 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, vol. 62(1), pages 38-54, April.
  5. Weber, Martin & Camerer, Colin F., 1998. "The disposition effect in securities trading: an experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 33(2), pages 167-184, January.
  6. 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.
  7. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-79, June.
  8. Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, vol. 39(1), pages 17-31, January.
  9. Nardinelli, Clark & Simon, Curtis, 1990. "Customer Racial Discrimination in the Market for Memorabilia: The Case of Baseball," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 575-95, August.
  10. Zwiebel, Jeffrey, 1995. "Corporate Conservatism and Relative Compensation," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 1-25, February.
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Cited by:
  1. 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).
  2. Daniel Friedman & Kai Pommerenke & Rajan Lukose & Garrett Milam & Bernardo Huberman, 2007. "Searching for the sunk cost fallacy," Experimental Economics, Springer, vol. 10(1), pages 79-104, March.
  3. repec:dgr:uvatin:2012143 is not listed on IDEAS
  4. Swee-Hoon Chuah & Robert Hoffmann & Jeremy Larner, 2011. "Escalation Bargaining: Theoretical Analysis and Experimental Test," ICBBR Working Papers 16, International Centre for Behavioural Business Research.
  5. Dennis Coates & Babatunde Oguntimein, 2008. "The Length and Success of NBA Careers: Does College Production Predict Professional Outcomes?," Working Papers 0806, International Association of Sports Economists;North American Association of Sports Economists.
  6. Leif Brandes & Marc Brechot & Egon Franck, 2014. " Managers’ External Social Ties at Work: Blessing or Curse for the Firm?," Working Papers 345, University of Zurich, Department of Business Administration (IBW).
  7. 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.
  8. 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, vol. 98(1), pages 15-27, September.
  9. Pedro Robalo & Rei S. Sayag, 2012. "Information at a Cost: A Lab Experiment," Tinbergen Institute Discussion Papers 12-143/VII, Tinbergen Institute.
  10. Borland, Jeff & Lee, Leng & Macdonald, Robert D., 2011. "Escalation effects and the player draft in the AFL," Labour Economics, Elsevier, vol. 18(3), pages 371-380, June.
  11. Cade Massey & Richard Thaler, 2005. "Overconfidence vs. Market Efficiency in the National Football League," NBER Working Papers 11270, National Bureau of Economic Research, Inc.

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