Psychological Determinants

Psychology could be defined as the regular scientific analysis of the mind, behaviour, and mental processes, in order to understand human minds and behaviour whether in individuals, groups or societies (Albon, 2007). In the escalation/de-escalation field,

171 psychological determinants refer to those variables that are linked to the decision maker‟s reactions, characters, or feelings and emotions (Staw and Ross, 1987b; O'Neil, 2009) as they add more explanation to managers' behaviour particularly when this behaviour is noticed as irrational.

Factors that are related to the decision maker‟s reactions might encourage errors in the estimation of costs or revenues, which influence the way that managers would collect or clarify gathered information or proceed in behaviour. In a case of individuals who might experience losses that caused them to be defensive, they would be more likely to limit their information search and identify information in a certain way (Staw et al., 1981).

Similarly, when the information presented questions the profitability of a course of action, it would be disbelieved if it was not in agreement with their image about that course of action (Caldwell and O'Reilly, 1982; Bazerman et al, 1982; Ross and Staw, 1993; Greer and Stephens, 2001). Within this perception, several variables were examined such as initial responsibility (Staw, 1976; McCain, 1986; Kirby and Davis, 1998; Slaughter and Greguras, 2008), prior experience (Staw and Ross, 1978; Goltz, 1992), degree of involvement (Conlon and Wolf, 1980; Biyalogorsky et al., 2006), diffusion of blame (Leatherwood and Conlon, 1983; 1987), mental budget establishment (Heath, 1995), justification (Bobocel and Meyer, 1994; Drummond, 1997; Kadous and Sedor, 2004), and evaluation bias (Slaughter and Greguras, 2008).

The second set of variables are related to the character of the decision maker, which might further attach managers to a course of action, whereas when individuals obtain a return

172 occasionally or when they trust their efforts, they might persevere in a course of action, despite the fact that there is no hope of attaining their goals (Platt, 1973; Bandura and Cervone, 1986; Staw and Ross, 1987a; Whyte et al, 1997). Variables related to the character of the decision maker were examined such as reinforcement traps (Ross and Staw, 1993; Newman and Sabherwal, 1996), identification with performance (Brockner et al., 1986; Drummond, 1994), incentive to shirk (Whyte et al., 1997; Harrison et al., 1999;

Salter et al., 2004), preference for consistency (Korzaan and Morris, 2009), rational thinking (Wong et al., 2008), risk perception (Wong, 2005), and self-efficacy (Whyte et al., 1997; Jani, 2008).

The third set of psychological determinants are related to the feelings and emotions of the decision maker that will influence his/her bond to a course of action, it is noticed that the more managers have negative feelings about a project the more they might be attached to the project, which would result in resisting and continuing a failing course of action.

Within this context, variables such as the degree of desire to revenge (Drummond, 1994), job insecurity (Fox and Staw, 1979; Drummond, 1994), feelings of anger and frustration (Lipshitz, 1995), being less tolerant of failure (Keil and Robey, 1999), regret (Ku, 2008), self-esteem (Sinanthan et al., 2008), guilt feelings (O‟Neill, 2009) and being worried about punishment (Pan et al., 2006) were examined.

Because the escalation/de-escalation phenomenon was mostly discussed in the organisational behaviour, strategic management, social psychology, and behavioural accounting literatures, (e. g. Arkes and Blumer, 1985; Bobocel and Meyer, 1994; Boehne,

173 and Paese, 2000; Greer and Stephens, 2001; Cheng et al., 2003) there was more interest in psychological factors. In fact these factors attracted the most attention of escalation/de-escalation authors considering that most of the previous literature comprised one or two psychological factors and it is very uncommon to find any study devoid of those factors, which is consistent with both the definition of psychology as it aims to understand behaviour as well as the rationale behind managers‟ behaviour. As escalation authors became more dependent on psychological determinants to explain managers' tendency to continue funding a failing project (Schulz and Cheng, 2002; Whyte et al, 1997; Bobocel and Meyer, 1994), de-escalation authors were less interested in these determinants (Pan et al, 2006; Gosh, 1997). They intended to examine whether the existence of factors linked to the project would weaken the influence of the psychological determinants on managers‟

choices and consequently reduce what was thought to be irrational behaviour (McCain, 1986; Simonson and Staw, 1992; Drummond, 1995; Schultz-Hardt et al., 2009). For example, Drummond (1995) showed that managers would prefer to de-escalate commitment if the influence of psychological determinants was weakened.

In agreement with the current study‟s theoretical research model, each of the psychological determinants that were examined previously can be treated as an approach/avoidance attribute of escalation of commitment (see Table 5.5). Regarding escalation of commitment approach attributes, both self-justification and personal responsibility have been widely investigated and confirmed (e.g. Staw, 1976; Caldwell and O'Reilly, 1981; Keil, 1995; Sabherwal et al., 2003; Schulz-Hardt et al., 2009) with few notable exceptions (e.g. Singer and Singer, 1986; Drummond, 1995; O‟Neill, 2009) to

174 effect the managers‟ allocation decisions. Studies who confirmed this influence have found empirical evidence that managers who were responsible for initiating a decision reinvested a higher amount of money to the initially funded decision than those who were not responsible for the initial decision (Schulz-Hardt et al., 2009). This influence has existed even when managers were surrounded with negative circumstances (Rutledge, 1995), or the decision was made by a group of managers (Bazerman et al., 1984; Moon et al., 2003; Zhiyuan and Qing 2008).

Table 5.5: Approach-Avoidance Attributes for Psychological Determinants

Approach attributes Avoid attributes

Individual initial responsibility Separate responsibility of approving from responsibility of evaluating

Self-justification The existence of a third party to blame

Group decision making Feelings of quilt

High degree of self-efficacy Opportunity to verify wounded ego

Feelings of anger High degree of self esteem

High degree of job insecurity Less degree of tolerance of failure

Tolerance of failure Setting a mental budget

Potential for personal gains More aware of problems Need for achievement

Ignoring project‟s difficulties

Believing that project would turn around

The strong influence of personal responsibility on managers‟ escalation decisions was weakened when managers were more influenced by political forces, as seen in Drummond (1995) case study, where psychological demands for continuance were low; as at no point did the manager appear to be influenced by feelings of responsibility for project failure. In agreement, when the responsibility of initiating and approving a project was separated from the responsibility of evaluating a project, managers would be less likely influenced by personal responsibility and they would make de-escalation decisions (Keil and Robey, 1999).

175 The argument about the influence of personal responsibility and self-justification on escalation/de-escalation decisions encouraged more researchers to examine other psychological factors (e.g. Leatherwood and Conlon, 1983; Whyte, 1993; Rutledge, 1995;

Keil and Robey, 1999; Seibert and Goltz, 2001; Moon et al., 2003; O‟Neill, 2009).

Managers were adding more resources to failing projects when they believed they had self-efficacy (Whyte, 1997), when they believed that the failing project could not be turned around despite the disappointing results that were intensely frustrating (Kisfalvi, 2000), when managers experience a condition of high job insecurity and high policy resistance (Fox and Staw, 1979; Sabherwal et al., 2003), or when managers have a potential for personal gain, which had a positive relationship with the continuation of a troubled project, where the more individuals felt the need for achievement in terms of implementation mind-set, internal locus of control and preference for consistency, the more they would continue a troubled project (Korzaan and Morris, 2009). Personal gains, additionally, were noticed in terms of the motivation to maintain an internal image of competence (Rao and Monk, 1999) and in the existence of private information (Harrison et al., 1999).

Managers‟ de-escalation decisions were influenced by psychological determinants in terms of feelings and emotions they experienced in previous similar situations such as when managers had frequently expressed guilt feelings (O‟Neill, 2009), when they experienced regret emotions in one escalation situation, which would tend to reduce future escalation (Ku, 2008), or as explained in Zikmund-Fisher‟s (2004) study, who reported that nearly one third of participants chose not to return to the experiment at all, another

176 42% quit after making only one more unsuccessful attempt, 65% quit because they believed that they had little or no chance of winning, 32% quit because they were losing too much money, and 32% quit because it was too frustrating to lose time after time.

More de-escalation forces were noticed such as the incidence of a third party as a cause of the negative consequences that which offered means in which blame could be diffused by the decision maker (Leatherwood and Conlon, 1983), when managers set a mental budget, even with the existence of sunk costs effect, they (80%) stopped reinvesting in a failing project (Heath, 1995), or when managers were more aware of problems and they believed that the project is a failure and cannot be turned around (Keil and Robey, 1999).

Further, the clear association between managers‟ tolerance of failure and de-escalation decisions that was established in studies influenced their choices, such as, the research by Keil (1995), Keil and Robey (1999) and Yik and Kwong (2006). The less tolerance for failure that individuals have, the less likely they would be attached to the same selected investment decision when it appears to be failing (Yik and Kwong, 2006). Likewise, the association between managers‟ high/low self-esteem and their choices, affected managers‟

de-escalation decisions (Sivanathan et al., 2007; 2008). The more managers were given the opportunity to verify their wounded ego the less they were motivated to justify past actions and, accordingly, were less likely to escalate bad decisions, further, managers who were allowed to bring to mind their high self-esteem, who were allowed to reflect on an important personal value, and received feedback affirming an important ability not directly related to the decision they had made were more likely to decrease escalation,

177 finally, managers with high self-esteem who received feedback affirming an important ability that was directly related to their decision increased escalation of commitment to their decision.

Therefore, based on literature evidence above, the link between managers' escalation/de-escalation decisions and psychological determinants can be hypothesized as follows:

H4: Psychological determinants influence managers' decisions to escalate/de-escalate commitment to a failing course of action.