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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.

Suggested Citation

  • Camerer, Colin F. & Weber, Roberto A., 1998. "The Econometrics and Behavioral Economics of Escalation of Commitment: A Re-examination of Staw and Hoang's NBA Data," Working Papers 1043, California Institute of Technology, Division of the Humanities and Social Sciences.
  • Handle: RePEc:clt:sswopa:1043
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    References listed on IDEAS

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    Cited by:

    1. Cade Massey & Richard Thaler, 2005. "Overconfidence vs. Market Efficiency in the National Football League," NBER Working Papers 11270, National Bureau of Economic Research, Inc.
    2. Ryan M. Rodenberg, 2013. "The goals and impacts of age restrictions in sports," Chapters,in: Handbook on the Economics of Women in Sports, chapter 8, pages 156-172 Edward Elgar Publishing.
    3. repec:eee:jeborg:v:142:y:2017:i:c:p:105-119 is not listed on IDEAS
    4. Ho, Teck Hua & Png, Ivan P. L. & Reza, Sadat, 2017. "Sunk Cost Fallacy in Driving the World's Costliest Cars," MPRA Paper 82139, University Library of Munich, Germany.
    5. Paradiso, Antonio & Kumar, Saten & Margani, Patrizia, 2014. "Are Italian consumer confidence adjustments asymmetric? A macroeconomic and psychological motives approach," Journal of Economic Psychology, Elsevier, vol. 43(C), pages 48-63.
    6. Leif Brandes & Marc Brechot & Egon Franck, 2011. "The Temptation of Social Ties: When Interpersonal Network Transactions Hurt Firm Performance," Working Papers 00159, University of Zurich, Institute for Strategy and Business Economics (ISU), revised 2012.
    7. Daniel Friedman & Kai Pommerenke & Rajan Lukose & Garrett Milam & Bernardo Huberman, 2007. "Searching for the sunk cost fallacy," Experimental Economics, Springer;Economic Science Association, vol. 10(1), pages 79-104, March.
    8. David J. Berri & Anthony C. Krautmann, 2013. "Understanding the WNBA on and off the court," Chapters,in: Handbook on the Economics of Women in Sports, chapter 7, pages 132-155 Edward Elgar Publishing.
    9. Dennis Coates & Babatunde Oguntimein, 2010. "The Length and Success of NBA Careers: Does College Production Predict Professional Outcomes?," International Journal of Sport Finance, Fitness Information Technology, vol. 5(1), pages 4-26, February.
    10. 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).
    11. David J. Berri & Brad R. Humphreys & Robert Simmons, 2013. "Valuing the blind side: pay and performance of offensive linemen in the National Football League," Chapters,in: The Econometrics of Sport, chapter 6, pages 99-114 Edward Elgar Publishing.
    12. Pedro Robalo & Rei S. Sayag, 2012. "Information at a Cost: A Lab Experiment," Tinbergen Institute Discussion Papers 12-143/VII, Tinbergen Institute.
    13. Matthias Mahlendorf, 2015. "Allowance for failure: reducing dysfunctional behavior by innovating accountability practices," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(3), pages 655-686, August.
    14. Swee-Hoon Chuah & Robert Hoffmann & Jeremy Larner, 2011. "Escalation Bargaining: Theoretical Analysis and Experimental Test," Discussion Papers 2011-05, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    15. 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.
    16. Brandes, Leif & Brechot, Marc & Franck, Egon, 2015. "Managers’ external social ties at work: Blessing or curse for the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 203-216.
    17. Robert A. Lowe & Arvids A. Ziedonis, 2006. "Overoptimism and the Performance of Entrepreneurial Firms," Management Science, INFORMS, vol. 52(2), pages 173-186, February.
    18. Chuah, Swee-Hoon & Hoffmann, Robert & Larner, Jeremy, 2014. "Chinese values and negotiation behaviour: A bargaining experiment," International Business Review, Elsevier, vol. 23(6), pages 1203-1211.
    19. 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.
    20. 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.

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