Presentación, Análisis e Interpretación

Project determinants are the objective attributes of a project, the project's benefits and costs (Brockner, 1992). Factors such as proximity to the goal and project completion effects have been found to enhance entrapment and sunk cost accounting.

Rubin and Brockner (1975), conducted an experiment designed to investigate the effects of reward value, awareness of costs and goal proximity. Subjects were able to win large amounts of money, which diminished over time. For half of the players, the rate of decrement was high (High Decrement condition) whereas for the other half it was low (Low Decrement Condition). This condition was introduced so as to test the experimenters’ hypothesis that the lower the rate of decrement, the greater the temptation to continue and the sunk cost effects. In order to win the jackpot, the participants had to solve a series of crossword puzzles. However, players could request a dictionary for puzzles they deemed difficult. However, they were warned that only one dictionary was available and so they might have to wait in line in order

to use it. In fact, the dictionary was never available. Half the subjects, after asking for the dictionary, were given a card telling them that they were first in line for its use (High Proximity condition), whereas the other half were informed that they were third in line (Low Proximity condition). The researcher’s prediction was that subjects in the

High Proximity condition would exhibit greater entrapment. It was hypothesised if people became more focused on costs, entrapment would be reduced. To test this, half of the subjects were provided with a chart indicating costs and benefits at various time periods during the game (High Salience Condition), while half were not (Low salience Condition). Entrapment was measured by the amount of time the subjects spent staying in the game, as they were given the option to quit but their payoff in this case would be significantly smaller than if they had not participated at all, since participation in the game meant a reduction in their initial stake at each time period. The results confirmed all three hypotheses. Namely, the rate of decrement of the reward and cost salience is inversely related to the magnitude of sunk costs, while proximity to the goal is positively related to sunk cost effects.

In fact, examining goal proximity in entrapment situations has been the focus of many experiments. Arkes and Blumer (1985, Experiments 3, 4 and 5) found that subjects faced with a decision to invest that same amount of funds to start up with the same R & D projects. The authors also tested to see whether this decision was owed to the fact that subjects falling prey to sunk costs spend despite high probability of failure or because they do not perceive the situation as a lost cause. The first hypothesis displayed only face saving concerns, but the second verified the existence of sunk cost

effects, since the latter are supposed to distort the decision makers’ judgement. Therefore, the findings verified the second hypothesis as the greater the proximity to the goal, which in this case also meant higher sunk costs, the more “irrationally” confident were the decision makers about the success of the project.

Garland (1990) tested the functional relationship between sunk costs and the decision to continue investment in an R & D project (based on the original design of Arkes and Blumer, 1985). Subjects were asked to take the role of president in the Aero-Flite Corporation and decided whether to commit additional resources to a partly completed project. Five stages of prior spending and project completion were considered – 1, 3, 5, 7 and 9 million dollars had been spent and the project was 10%, 30%, 50%, 70% and 90% completed, respectively. The overall budget for the project was $10 million dollars. Subjects were asked to comment on how likely is it that: a) they would decide to use the last x million dollars to complete the project? b) they would authorise the next million to continue with the project? c) if the project was completed, the company would realize a profit? The findings illustrated that project completion or goal proximity is an important factor in decision-making. Subjects’ willingness to authorise additional resources for a threatened R & D project was both positively and linearly related to the proportion of budget that had already been expended. As a consequence, project completion effects may not be important in the presence of small sunk costs and in the initial stages of the projects but become very influential later on. Surprisingly enough, however, although the subjects generally considered the continuation of the project more likely than the abandonment of it,

they were far less confident about the probability of the project turning out to be profitable. This contradicts Arkes and Blumer’s (1985) assumption that individuals continue because of “irrational” expectations concerning the success of the project. Note however, that both findings could be interpreted by self-justification or prospect theory but do not conform to “rational” economic behaviour. Indeed Garland (1990) noted the individuals’ propensity to invest further in the project was independent of previous incremental costs (on average).

Although sunk costs and project completion may be highly correlated in many situations, they are conceptually distinct variables, worthy of separation in experimental studies in order to uncover any separate or combined effects they may have on escalation behaviour. In two studies with undergraduate business students, Conlon and Garland (1993) found that when sunk costs and project completion information were manipulated independently, there was no evidence of sunk cost effects, even in a series of control conditions where no information was presented regarding the degree of project completion. There was, however, considerable evidence of project completion effects, where the closer the project was to completion, the greater the likelihood that decision makers would continue to invest in the project. These project-completion effects occurred under varying budget conditions, with the amount of money remaining in a project budget unknown, held constant, or inversely related to the amount that had been spent. Finally project completion effects occurred whether or not subjects were personally responsible for the initial investment in the project.

Conlon and Garland (1998), extend the notion explored in their 1993 paper, that what had been labelled a sunk cost effect might actually be a goal substitution effect. The studies allowed them to examine the effects of sunk costs and project completion in a scenario that investigates students’ willingness to continue investment in projects that were already underway. In studies with experienced bank managers, Chinese graduate students and advanced MBA students they found overwhelming support for the importance of project completion an investment intention with no indication of typical sunk cost effects. The results reinforce a goal substitution escalation for many escalation phenomena where, as progress moves forward on a project, completion of the project itself takes an increasing precedence over other goals (e.g., economic profit) that may have been more salient at the time project was initiated.

Diekmann, et al. (1996) explored whether the amount sellers previously paid for their property affects both buyers and sellers engaged in a real estate negotiation. Study 1

demonstrated that buyers base their initial and highest offers on the seller’s previous purchase price. This finding extends the sunk cost literature to a negotiation context and suggests that sunk costs extend beyond the focal actor to one’s opponent and to the negotiated outcome. Study 2 demonstrated that sellers base their lowest acceptable offers on their previous purchase price. This is consistent with the negotiation framework developed by Raiffa (1982) who argues for an asymmetrical prescriptive/descriptive approach. This approach suggests that the best prescription for a negotiator should be based on a description of the likely decisions of the

opponent negotiator. In contrast to game theory approaches, Raiffa (1982) explicitly acknowledges that the actual behaviour of the opponent may fall far short of rationality. Study 3 reveals that the seller’s previous purchase price affects not only the buyers’ and sellers’ offers and expectations, but also the final negotiated outcome. The integration of these studies suggests that sunk costs do transmit across players, and that while the consideration of one’s own sunk costs may be irrational from an economic perspective, the consideration of one’s opponent’s sunk costs may be strategically rational if such consideration provides a descriptive analysis of one’s opponent’s actions.

Overall it is quite apparent that factors associated with the project influence escalation of commitment but not in the way “rational” economists would argue. Most researchers believe individuals’ motives for task completion alter during the course of a project. At the outset, economic decisions are dominant. As additional resources are poured into the investment, economic concerns are mixed with psychological motives. There is an increasing tendency to withdraw from the project due to increasing costs accompanied by an increasing tendency to escalate further. Later on, the psychological component becomes stronger as now the decision maker’s decisions reflect the need to appear consistent, save face and justify previous expenditures. Whilst these statements appear consistent with human behaviour in investment projects, it poses the question: at what stage of a project do economic considerations become psychological motives for task completion? If there is a visible boundary, is

it uniform or does it depend on the individual’s personality? It is certainly worthy of future research.