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Do We Really Need to Change the Decision Maker? Counterintuitive Escalation of Commitment Results in Real Options Contexts

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  • William Boulding

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

  • Abhijit Guha

    (Darla Moore School of Business, University of South Carolina, Columbia, South Carolina 29208)

  • Richard Staelin

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

Abstract

A robust finding in the escalation literature, termed as the preference effect, is that involvement in the period 1 initial project assessment decision increases the tendency for decision makers to stick with a losing course of action during the period 2 project reassessment decision. The proposed solution is to bring in a new decision maker in period 2. Across multiple studies, we show that providing period 1 information in real options format increases the tendency for decision makers to view period 2 focal event information as both more negative and more important. Consequently, such decision makers exhibit less escalation in period 2, i.e., exhibit behavior opposite to the preference effect. This suggests that, in real option contexts, not only do we not need to bring in a new decision maker, but also (counterintuitively) it is beneficial to retain the same decision maker in situations where escalation is likely to occur.

Suggested Citation

  • William Boulding & Abhijit Guha & Richard Staelin, 2017. "Do We Really Need to Change the Decision Maker? Counterintuitive Escalation of Commitment Results in Real Options Contexts," Management Science, INFORMS, vol. 63(10), pages 3459-3472, October.
    • Handle: RePEc:inm:ormnsc:v:63:y:2017:i:10:p:3459-3472
    DOI: 10.1287/mnsc.2016.2475
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    Cited by:

    1. Alejandro Montecinos‐Pearce & Pablo Rodrigo & Ignacio J. Duran, 2020. "When is escalation of commitment unstoppable in group settings? An iterative economic modeling approach to unveil the dark side of group decision‐making," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(8), pages 1387-1402, December.
    2. Xiaoyang Long & Javad Nasiry & Yaozhong Wu, 2020. "A Behavioral Study on Abandonment Decisions in Multistage Projects," Management Science, INFORMS, vol. 66(5), pages 1999-2016, May.

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