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Vicarious entrapment: Your sunk costs, my escalation of commitment

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Abstract

Individuals often honor sunk costs by increasing their commitment to failing courses of action. Since this escalation of commitment is fueled by self-justification processes, a widely offered prescription for preventing escalation is to have separate individuals make the initial and subsequent resource allocation decisions. In contrast to this proposed remedy, four experiments explored whether a psychological connection between two decision-makers leads the second decision-maker to invest further in the failing program orchestrated by the initial decision-maker. Across three different contexts (financial investments, personnel decisions, and auctions), we found that multiple forms of psychological connectedness (perspective-taking, shared attributes, and interdependent mindsets) led decision-makers to vicariously justify others’ initial decisions and escalate their own commitment to these decisions – even in the face of direct financial costs to themselves, and even among economics students trained in the irrationality of honoring sunk costs. The ability of subtle psychological connections to undermine the conventional prescription for de-escalation has important implications for organizations, public policy, and theories of escalation.

Introduction

In 2006, Brian Hunter, a trader with Amaranth hedge fund, held a financial position that predicted natural gas prices would rise. Despite mounting evidence to the contrary, he stuck to his position. Within a week, he amassed $4.6 billion in losses, precipitating the largest hedge fund collapse in history. In 1965, the Long Island Lighting Company set out to build the first commercial nuclear power plant, scheduled for operation in 1973 with an estimated cost of $70 million. Despite cost overruns, regulatory setbacks, and evidence of economic infeasibility, the company pressed forward. When the project was finally decommissioned in 1983, never having seen a day of commercial operation, the expenditures had mushroomed to over $6 billion. Both stories exemplify the decision bias called “escalation of commitment”: a decision-maker’s tendency to honor resources already invested, which economists refer to as “sunk costs,” by allocating further resources to a failing course of action (Staw, 1976).

Escalation is often driven by motivational processes (Kunda, 1990), fueled by the desire to justify past decisions (Staw, 1976). Based on these self-justification processes, researchers have prescribed the elegant remedy of having one individual make the initial resource decision and a different individual make the subsequent decision (Brockner, 1992, McCarthy et al., 1993, Schoorman, 1988, Staw et al., 1997). This partitioning of decision-makers removes the initial decision-maker’s self-serving need to justify previous investments and slackens the motivation to honor sunk costs by reinvesting in failing courses of action.

In some instances, however, this theoretically sound advice seems to fail. For instance, when Lyndon Johnson assumed the Presidency from John F. Kennedy, he inherited his fellow Democrat’s initial commitment of 16,000 troops to the Vietnam War. Near the end of the Johnson administration, the initial commitment had spiraled to 537,000 troops. Although many socio-political processes contributed to the increase in troop deployment, escalation was singled out as an important culprit (Staw, 1976).

We propose that the success of the commonly-prescribed, two decision-maker solution rests not just on the physical separation, but also on the psychological separation of the decision-makers. If the second decision-maker is psychologically connected to the first, she may become vicariously motivated to justify the actions of the first. Even the subtlest of psychological connections, we propose, can undermine this accepted panacea to escalation. The current research explicitly tests whether a psychological connection between physically separate decision-makers – borne of perspective-taking, shared attributes, or an interdependent mindset – facilitates escalation, counter to the prescribed solution.

Section snippets

Separating decision-makers to de-escalate commitment

Escalation of commitment occurs when a decision-maker allocates resources toward a particular goal, and then learns that the goal has not been achieved. Now facing an ambiguous choice about whether additional resources will achieve the goal, the decision-maker increases his or her original investment (i.e., escalates). Because individuals are motivated to see themselves positively (Bradley, 1978, Weinstein, 1980), feedback that challenges this view (i.e., a failed initial decision) creates

Psychological connections and vicarious processes

Humans are inherently social beings, driven to secure attachments with others (Baumeister & Leary, 1995). People feel connected to others when they share even subtle similarities like common group membership (Tajfel, Billig, Bundy, & Flament, 1971), similar names (Pelham, Carvallo, & Jones, 2005), and even the same birthday (Miller, Downs, & Prentice, 1998). Once a psychological connection forms between two individuals, they are more likely to cooperate (Batson, Chang, Orr, & Rowland, 2002) and

Overview of current research

We contend that psychological connectedness will lead one decision-maker to honor the sunk costs of a previous decision-maker, as if the other’s sunk costs were his/her own. As a result, these subtle psychological connections will have the unintended effect of perpetuating the very bias that physical separation was intended to placate.

We conducted four studies to examine if multiple forms of psychological connectedness – perspective-taking (Experiments 1 and 2), shared attributes (Experiment

Experiment 1: perspective-taking and the failing division

The first experiment tested whether perspective-taking would increase commitment to another person’s initial decision. We used the single-most validated escalation scenario, the A&S case (e.g., Schultz-Hardt et al., 2009, Sivanathan et al., 2008, Staw, 1976). In the first experiment, participants learned that another individual, BG, chose to invest in a division that had since performed worse than the un-chosen division. Participants then made additional investments in the two divisions. We

Results and discussion

As predicted, participants who took the perspective of the first decision-maker invested more in the originally invested division than participants who remained objective, t(53) = 2.12, p = .04, d = .58 (see Table 1). These results provide initial support for our prediction that taking a previous decision-maker’s perspective leads participants to escalate on that decision-maker’s prior commitments.

Experiment 2: perspective-taking and the failing employee

In Experiment 2 we sought to enhance the generalizibility of our findings by: (a) comparing perspective-taking to a no-instructions control condition to ensure that the observed effects were not driven by the objectivity instructions, (b) separating the perspective-taking manipulation from the escalation task, and (c) using a different, validated escalation scenario (personnel decisions, Bazerman et al., 1982). Participants were first asked to write about the day in the life of a recent

Results and discussion

As predicted, perspective-takers increased their investment in the previously chosen candidate more than did control participants, t(52) = 2.138, p = .04, d = .59 (see Table 1). These results provide strong support for our hypothesis that perspective-taking fuels escalation of others’ commitments. Taken together, the first two experiments, employing different escalation contexts, different manipulations of perspective-taking, and different comparison conditions, revealed that individuals vicariously

Experiment 3: shared attributes and the failing auction

In Experiment 3, we sought to further demonstrate the robustness of the link between psychological connectedness and vicarious escalation by examining a different and more subtle form of psychological connection (shared attributes: the same birthday) and a different escalation context (an auction) in which participants bid and potentially lost their own money (adapted from Ku, 2008). In addition, and more importantly, we sought to increase our confidence in vicarious escalation by replicating

Results and discussion

As predicted, participants in the shared-attributes condition made more overall bids than did participants without shared attributes, t(47) = 2.30, p = .03, d = .66 (See Table 1). In monetary terms, shared-attributes participants lost a significant amount of money, an average of $2.00 from the auction, t(23) = 4.29, p < .01, whereas those with different attributes lost just $0.52, which was not significantly different from zero, t(24) = 1.17, p = .25. Furthermore, 71% of participants (17 out of 24

Experiment 4: interdependence and vicarious self-justification

Experiment 4 sought to extend the previous findings that psychological connectedness fuels escalation in two ways. First, we examined the effects of a generalized psychological connection by activating an interdependent mindset through priming. Second, to measure the experience of vicarious self-justification, we asked participants how they felt about themselves after learning the outcome of the first person’s decision. We predicted that participants in the interdependent condition would

Results and discussion

As predicted, participants primed with interdependence invested significantly more in the previously chosen division than did participants primed with independence, t(31) = 2.67, p = .01, d = .96 (see Table 1). Furthermore, participants in the interdependent condition reported feeling worse about themselves (M = 3.00 SD = 0.43) than did participants in the independent condition (M = 2.33 SD = 0.97); t(31) = 2.26, p = .03, d = .81.

As predicted, self-justification mediated the relationship between interdependence

General discussion

Across four experiments, using different instantiations of psychological connectedness, escalation scenarios, and participant populations, we found that psychologically connected decision-makers escalated their investment in the failed decisions of others to vicariously justify those prior decisions. Participants escalated whenever they experienced a psychological connection to the earlier decision-maker: by taking the perspective of the previous decision-maker (Experiments 1 and 2), by sharing

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    This research was supported by a DRRC grant to the first and third author and a RAMD grant to the second author.

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