De-escalation of commitment in oil exploration: when sunk costs and negative feedback coincide

Article Abstract:

Three experiments were conducted to examine the combined effects of sunk costs and negative feedback on decisions to escalate or withdraw from a petroleum-exploration venture. In Experiments 1 and 2, petroleum geologists responded to scenarios in which from 1 to 4 dry wells had been drilled. Number of dry wells was manipulated both between subjects (Experiment 1) and within subjects (Experiment 2). Contrary to earlier research, the higher the sunk cost (i.e., the greater the number of dry wells), the less likely geologists were to authorize funds to continue with the venture and the lower their estimates were of the likelihood that the next well would be productive. In Experiment 3, university students responded to our oil-drilling scenarios. Results of this experiment were in the same direction as that found with the geologists but were considerably weaker and were not statistically significant. (Reprinted by permission of the publisher.)

Psychological aspects, Natural gas exploration, Oil and gas exploration, Petroleum exploration, Commitment (Psychology), Cost (Economics), Costs (Economics), Feedback (Psychology), Feedback (Communication)

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Diffusion of responsibility: effects on the escalation tendency

Article Abstract:

In a laboratory study, the possibility was investigated that group decision making in the initial stages of an investment project might reduce the escalation tendency by diffusing responsibility for initiating a failing project. Support for this notion was found. Escalation effects occurred less frequently and were less severe among individuals described as participants in a group decision to initiate a failing course of action than among individuals described as personally responsible for the initial decision. Self-justification theory was found to be less relevant after group than after individual decisions. Because most decisions about important new policies in organizations are made by groups, these results indicate a gap in theorizing about the determinants of escalating commitment for an important category of escalation situations. (Reprinted by permission of the publisher.)

Decision-making, Group, Group decision making, Delegation of authority, Responsibility

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