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

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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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. 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.
  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. 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.
  6. 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.
  7. 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.
  8. Zwiebel, Jeffrey, 1995. "Corporate Conservatism and Relative Compensation," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 1-25, February.
  9. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-79, June.
  10. 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.
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