A learning-based explanation of escalation of commitment, sunk cost, and entrapment

Sonia May Goltz, Purdue University

Abstract

In the course of research on organizational decision-making, documentation of an intriguing class of phenomena has occurred. These phenomena involve the persistent investment of resources in a course of action which is failing or incurring costs. Past explanations of these phenomena have included self-justification, learned helplessness, reactance, and invulnerability. The present investigation proposes and tests an alternative explanation, based on the sequential hypothesis of learning (Capaldi, 1967, 1971). Specifically, it is thought that the experience of a particular pattern of losses and returns for past decisions involving resource allocation is responsible for the increased resistance to failure experiences found in these phenomena. To test this alternative explanation, an experiment was designed which contained five conditions differing only in the pattern of returns and losses experienced by subjects for investment decisions. The dependent variables of dollar amount invested and confidence level were then examined for escalation and persistence during the second phase of the experiment: a period of continuous losses. Results of the experiment supported the proposed explanation. Only subjects in one particular condition escalated and persisted in the face of continuous losses. These subjects had experienced an irregular sequence of losses and returns for their investment in the stock during the conditioning phase of the experiment, whereas other subjects had experienced either a regular pattern of losses and returns or a continuous series of returns during the first phase of the experiment. Thus, it was concluded that the sequential hypothesis of learning is a viable explanation of the persistence and escalation found in the phenomena of escalation of commitment, entrapment, and sunk cost. Implications of the findings and future research possibilities are discussed.

Degree

Ph.D.

Advisors

Weiss, Purdue University.

Subject Area

Occupational psychology|Management

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