هزینه های غرق شده و منافع غرق شده: بررسی مجدد تصمیمات سرمایه گذاری مجدد
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|10415||2012||13 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : The British Accounting Review, Volume 44, Issue 3, September 2012, Pages 144–156
Prior experimental studies supporting the prospect theory explanation of the sunk-cost effect manipulate the framing of the initial investment, describing it either in neutral terms or as a prior loss. This paper subjects the prospect theory explanation to further examination, but takes an alternative experimental approach based on the differential risk taking behaviour predicted by prospect theory’s S-shaped value function. The experiments manipulate whether an initial investment produces a sunk cost (prior loss) or a sunk benefit (prior gain) and investigate the impact of this on the likelihood of authorising an incremental investment held constant across treatment conditions. To ensure the results are robust to the type of incremental investment, two experiments are conducted across which the outcomes of the incremental investment are manipulated to produce poor or good investment opportunities. In all cases the results fail to support a higher likelihood of authorising the incremental investment following a sunk cost than a sunk benefit. In isolation, therefore, prospect theory is unable to explain fully the sunk-cost effect.
The conventional wisdom in management accounting follows the principles of economic rationality, which dictate that individuals should evaluate financial decisions based solely on an incremental analysis and so consider only future costs and benefits. Behavioural research in accounting, however, provides convincing evidence that individuals’ decisions are influenced by prior outcomes. Numerous studies, for example, document escalation of commitment; the tendency to commit additional funds to a failing project in an attempt to recoup prior sunk costs (e.g. Arkes and Blumer, 1985, Cheng et al., 2003, Chow et al., 1997, Denison, 2009, Garland, 1990, Ghosh, 1997, Kanodia et al., 1989, Staw, 1976 and Thaler, 1980).1 While various explanations of the sunk-cost effect have been proposed (see Wilson & Zhang, 1997, for a review), many authors (e.g. Arkes and Blumer, 1985, Garland, 1990 and Whyte, 1993) draw on Kahneman and Tversky’s (1979) prospect theory in which prior outcomes impact on subsequent decisions, with increased risk seeking behaviour in the presence of prior losses (i.e. sunk costs) and risk aversion in the presence of prior gains (what might be referred to as sunk benefits). Given that escalation of commitment is routinely related to a failing course of action, the escalation and sunk-cost effect literatures have tended to focus on the prospect theory explanation of behaviour in the presence of prior losses, ignoring its prediction relating to behaviour in the presence of prior gains. Whyte (1986, p. 319), however, an early proponent of the prospect theory explanation of the escalation of commitment or sunk-cost effect, recognises the testable implication stemming from prospect theory’s prediction in the presence of prior gains; notably that “escalating commitment in the context of success will occur, but the level of commitment evidenced in the future will tend to be less than is warranted by an objective analysis of the situation.” More specifically, if prospect theory is at the root of the sunk-cost effect, then changes in risk taking behaviour following prior outcomes should make re-investment more likely following sunk costs (prior losses) than would be observed following sunk benefits (prior gains). This paper examines this testable implication, thus subjecting the prospect theory explanation of the sunk-cost effect to further experimental examination. In the experiments reported here participants are presented with either a sunk cost or a sunk benefit investment scenario and then asked to make an identical, incremental investment decision, the outcome of which feeds directly into the monetary incentive mechanism used to determine payment for participation in the experiment. Holding the incremental investment constant, economic theory would predict no difference in the tendency to authorise the incremental investment across the sunk cost/benefit treatment, while if prospect theory is at the root of the sunk-cost effect there should be an increased tendency for those participants experiencing the sunk-cost condition to accept the incremental investment than those experiencing the sunk benefit condition. To ensure the results are robust to the nature of the incremental investment two versions of the experiment are run. In Experiment One the incremental investment represents a poor investment (i.e. it has a negative expected value), while in Experiment Two it represents a good investment (i.e. positive expected value). Contrary to the predictions of both economic theory and prospect theory, the results from Experiment One indicate that individuals are less likely to authorise incremental investments in the presence of a sunk cost than a sunk benefit when the incremental investment represents a poor investment opportunity. In Experiment Two, when the incremental investment represents a good investment, contrary to prospect theory there is no effect of the sunk cost/benefit treatment on the tendency to authorise the incremental investment, which is in line with economic theory. In isolation, therefore, prospect theory is unable to explain fully the sunk-cost effect, thus supporting Wilson and Zhang (1997) who conclude that, while many of the explanations of escalation have explanatory power, none alone can explain fully the phenomenon. The structure of the paper is as follows. The next section provides a brief review of related literature, explains in more detail the prospect theory explanation of the sunk-cost effect and states in general terms the hypotheses to be examined. Section 3 discusses the experimental method employed, along with the background of the participants and a manipulation check. Section 4 highlights unique features of the design and presents the results from Experiment One, while Section 5 does the same for Experiment Two. Section 6 presents additional analyses intended to provide further insight concerning the factors that influence participants’ decisions to authorise the incremental investment. The final section draws conclusions.
نتیجه گیری انگلیسی
This paper provides an alternative evaluation of the prospect theory explanation of the sunk-cost effect. Two experiments are conducted in which participants make incremental investment decisions in the presence of either a sunk cost or a sunk benefit. The two experiments differ with respect to the type of incremental investment available to participants. In common with the approach in prior studies, the incremental investment in Experiment One represents a ‘poor’ proposal with a negative expected value, thus authorising the investment constitutes risk seeking behaviour. However, contrary to the predictions of both prospect theory and economic theory, the results indicate that individuals exhibit, relatively speaking, an increase in risk seeking behaviour after a sunk benefit rather than after a sunk cost. This result is robust to changes in the probability that the incremental investment delivers a positive net cash flow. The incremental investment in Experiment Two represents a ‘good’ proposal as it has a positive expected value, but the probabilistic nature of the outcome means that authorising the incremental investment is still risky. No effect of the sunk cost/benefit treatment is found, thus observed behaviour in the presence of a good investment opportunity appears to be in line with economic theory and conventional accounting wisdom. However, while the evidence is not as damning as that from Experiment One, it still fails to support the prospect theory explanation of the sunk-cost effect. In addition to the main result discussed above, there are a number of other interesting features of the results across the two experiments that warrant comment. First, while individuals appear to be affected by the sunk cost/benefit manipulation when evaluating a poor investment, they appear not to be affected when evaluating a good investment and so appear to make more rational choices. Thus in times of adversity, when investment opportunities are poor and good investment decisions are particularly important, individuals appear to make less rational decisions than in times of prosperity, when investment opportunities are good and poor investment decisions are not so costly. Second, Sitkin and Weingart (1995) argue that perception of decision risk is negatively related to risk taking behaviour, thus the lower the perceived risk the higher the risk taken. Following this reasoning, it is possible to gain insight about what individuals perceived as risk in the investment scenarios they faced. For both experiments there was a significantly higher likelihood of authorising the incremental investment in the high probability of a good outcome condition than the low probability of a good outcome condition. In both experiments, the high probability condition generated a potential loss that was larger than that in the low probability condition (−£17m including initial outlay, compared to −£2m) and also produced a higher variance of outcomes than the low probability condition, but in contrast was associated with a lower probability of loss (0.2 compared to 0.8 in the low probability condition). The results suggest, therefore, that individuals perceived risk to be associated with probability of loss, not size of loss or variance of outcomes. Third, Zeelenberg and van Dijk (1997) investigate the sunk-cost effect and demonstrate that feedback on forgone outcomes, with the associated potential to induce anticipated regret, can modify behaviour. By focussing on probability of loss it is conceivable that individuals in the experiments reported here were concerned with the probability of ending up worse off than they would have been for certain had they chosen not to authorise (a cash prize value of £20); a situation that would have clearly prompted regret. Individuals were four times more likely to end up worse off if they authorised than if they did not authorise in the low probability of a good outcome condition than the high probability condition (probability of loss of 0.8 and 0.2, respectively). A potential limitation of the experimental method employed may be that participants did not actually experience the prior outcome, sunk cost or sunk benefit, for real and so it could be questioned whether participants’ reference points were influenced by the treatment manipulation. The results of a manipulation check reported earlier, however, suggest that the treatment manipulation would have the desired effect on participants’ reference points. In addition, Experiment One reports a significant effect of the sunk cost/benefit treatment, thus providing clear evidence that the hypothetical nature of the manipulation did not prevent it from impacting upon participants’ reference points, though the change in behaviour was not in the direction predicted by prospect theory. Finally, it is worth noting that many studies, including of course Kahneman and Tversky (1979), report behaviour consistent with prospect theory based upon hypothetical decision scenarios, thus there is no a priori reason to question whether participants’ frames of reference, and hence behaviour, could be manipulated by a hypothetical sunk cost (loss) or sunk benefit (gain). To conclude, if a decision maker falls prey to the sunk-cost effect when deciding whether to commit additional resources to a failing project, they are making decisions on less than rational economic grounds and scarce resources can potentially be allocated inefficiently. Understanding why individuals fall prey to the sunk-cost effect is, therefore, important and will help in the development of robust techniques aimed at mitigating the effect. Contrary to the predictions of prospect theory, this paper provides evidence that individuals are not more likely to authorise incremental investments in the presence of a sunk cost than a sunk benefit. In isolation, therefore, prospect theory is unable to explain fully the sunk-cost effect. This view is corroborated by Friedman, Pommerenke, Lukose, Milam, and Huberman (2007) for whom the sunk-cost effect proves elusive and whose data provide little evidence of loss aversion. While the findings reported here fail to support the prospect theory explanation, it is not to say that it does not have a role to play. Predictions of changing risky behaviour across gains and losses based on the S-shape value function are not supported, however, the sunk-cost effect could be seen as a special case relating to losses only. It may be that prospect theory behaviour under losses coupled with the desire to avoid waste, which cannot meaningfully be extended to decision scenarios involving sunk benefits, are joint drivers of the sunk-cost effect, though this remains to be investigated.14 Future research seeking to mitigate the sunk-cost effect should look to other possible explanations of the effect, such as the way in which individuals form and use mental accounts. The results in Soman (2001) indicate that when the prior investment is in the form of time individuals do not fall prey to the sunk-cost effect in the same way as when the investment is monetary. Soman (2001) provides evidence to suggest this result is due to the way in which individuals mentally account for time, which Duxbury, Keasey, Zhang, and Chow (2005) show differs from how they mentally account for money. Thus, mental accounting effects, perhaps coupled with prospect theory, may play an important role in the tendency for individuals to succumb to the sunk-cost effect and represent an important avenue for future research, both in terms of causes of the sunk-cost effect and ways in which to mitigate its impact on investment and consumption behaviour.