The role of information asymmetry in escalation phenomena: Empirical evidence

Joyce E. Berg, John W. Dickhaut, Chandra Kanodia

Research output: Contribution to journalArticlepeer-review

12 Scopus citations

Abstract

Economic rationality dictates that only incremental costs and benefits should affect decisions. Observed behavior often seems to violate this principle, resulting in unwarranted commitment to past choices and their escalation. In this paper, we present experimental results that show that information asymmetry plays a key role in determining when such escalation behavior occurs. This finding opens new avenues for mitigating escalation behavior since information asymmetry is an environmental feature that can be modified by organization design and explicit economic rewards.

Original languageEnglish (US)
Pages (from-to)135-147
Number of pages13
JournalJournal of Economic Behavior and Organization
Volume69
Issue number2
DOIs
StatePublished - Feb 1 2009

Keywords

  • Escalation of commitment
  • Reputation
  • Sunk costs

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