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The role of information asymmetry in escalation phenomena: Empirical evidence

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  • Berg, Joyce E.
  • Dickhaut, John W.
  • Kanodia, Chandra

Abstract

Economic rationality dictates that only incremental costs and benefits should affect decisions. Observed behavior often seems to violate this principle, resulting in unwarranted commitment to past choices and their escalation. In this paper, we present experimental results that show that information asymmetry plays a key role in determining when such escalation behavior occurs. This finding opens new avenues for mitigating escalation behavior since information asymmetry is an environmental feature that can be modified by organization design and explicit economic rewards.

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Bibliographic Info

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

Volume (Year): 69 (2009)
Issue (Month): 2 (February)
Pages: 135-147

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Handle: RePEc:eee:jeborg:v:69:y:2009:i:2:p:135-147

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Escalation of commitment Sunk costs Reputation;

References

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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, vol. 62(1), pages 38-54, April.
  2. 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.
  3. 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.
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Cited by:
  1. 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.

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