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Progress framing and sunk costs: How managers' statements about project progress reveal their investment intentions

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  • Karevold, Knut Ivar
  • Teigen, Karl Halvor

Abstract

This study explores how managers' framing of project progress can reveal investment intentions. In three experiments managers were asked to evaluate hypothetical progress statements related to a failing project. Experiment 1 showed that past-oriented statements, describing the amount of work done and amount of budget and time spent (75%), were perceived as revealing a preference for the sunk costs option to a larger extent than future-oriented statements describing the magnitude of work, budget and time remaining (25%). In the next two experiments, progress was described relative to explicit reference points: in Experiment 2 more than 70%, or less than 80% was done/spent, while more than 20%, or less than 30% was remaining; in Experiment 3 almost half was done/spent, or almost half remaining. These different ways of framing progress in terms of work, money, and time were readily interpreted either as arguments in support of continued investments, or as arguments for switching to a novel project, dependent upon the perceived (rather than the numerical) magnitudes of achievements, investments, and remaining resources. The studies contribute to a communicative view of framing, and give an indication of managers' implicit theories of the psychology of sunk costs.

Suggested Citation

  • Karevold, Knut Ivar & Teigen, Karl Halvor, 2010. "Progress framing and sunk costs: How managers' statements about project progress reveal their investment intentions," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 719-731, August.
  • Handle: RePEc:eee:joepsy:v:31:y:2010:i:4:p:719-731
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    References listed on IDEAS

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    1. Garland, Howard & Newport, Stephanie, 1991. "Effects of absolute and relative sunk costs on the decision to persist with a course of action," Organizational Behavior and Human Decision Processes, Elsevier, vol. 48(1), pages 55-69, February.
    2. 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.
    3. Davis, Mark A. & Bobko, Philip, 1986. "Contextual effects on escalation processes in public sector decision making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 37(1), pages 121-138, February.
    4. 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.
    5. Levin, Irwin P. & Schneider, Sandra L. & Gaeth, Gary J., 1998. "All Frames Are Not Created Equal: A Typology and Critical Analysis of Framing Effects," Organizational Behavior and Human Decision Processes, Elsevier, vol. 76(2), pages 149-188, November.
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