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Escalation of Commitment in Investment Decisions: The Role of Emotions under Uncertainty

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Abstract

The purpose of this study is to better understand whether emotional aspects affect entrepreneurs’ and owner-managers’ decisions in investment situations when escalation of commitment can be observed and where the level of uncertainty was also added to the emotional aspect. The study was performed using conjoint analysis (a.k.a stated preference technique) and yielded following results: positive emotions (self-confidence, challenge, and hope) increase the decision-maker’s propensity to escalate commitment. Negative emotions (embarrassment and strain) do not, on the other hand, make the entrepreneur prone to escalate. The result remains the same for all positive emotions where an increasing level of uncertainty tends to make the entrepreneur more prone to escalate. Strain and embarrassment, under high uncertainty, decrease the tendency to escalate. All results are significant except for frustration that does not show any significant relationship. The combination of cognitive decision theories and emotional theories enhances our knowledge about the emotive side of entrepreneurs’ motives to escalate. The results also enable us to supplement and refine existing theories on self-justification.

Suggested Citation

  • Brundin, Ethel & Gustavsson, Veronica, 2008. "Escalation of Commitment in Investment Decisions: The Role of Emotions under Uncertainty," CISEG Working Papers Series 3, Jönköping International Business School, Centre for Innovation Systems, Entrepreneurship and Growth.
  • Handle: RePEc:hhs:hjiseg:0003
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    File URL: http://www.ihh.hj.se/ciseg/documents/CISEG-WP-No-3.pdf
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    1. Brundin, Ethel & Patzelt, Holger & Shepherd, Dean A., 2008. "Managers' emotional displays and employees' willingness to act entrepreneurially," Journal of Business Venturing, Elsevier, vol. 23(2), pages 221-243, March.
    2. Connolly, Terry & Ordonatez, Lisa D. & Coughlan, Richard, 1997. "Regret and Responsibility in the Evaluation of Decision Outcomes," Organizational Behavior and Human Decision Processes, Elsevier, vol. 70(1), pages 73-85, April.
    3. Dequech, David, 2000. "Confidence and action: a comment on Barbalet," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 29(6), pages 503-515, November.
    4. Muramatsu, Roberta & Hanoch, Yaniv, 2005. "Emotions as a mechanism for boundedly rational agents: The fast and frugal way," Journal of Economic Psychology, Elsevier, vol. 26(2), pages 201-221, April.
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    More about this item

    Keywords

    Emotions; Escalation of commitment; Uncertainty; Entrepreneurs;

    JEL classification:

    • M19 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Other

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