Hire Someone to Blame: Degree of Involvement in Decisions and the Likelihood that Professionals Will Stop Investing after Experiencing Losses

Abstract

The likelihood of stopping an investment project differs after an experienced gain or loss. We investigate how the degree of involvement in prior decisions affects the subsequent decision to change an investment. To this end we conduct a lab-in-the-field experiment with professional participants from the finance department of a large infrastructure company. In line with the hypothesis and prior findings from student samples we find that lower involvement in the decision is associated with a higher likelihood of changing the investment project after a loss. However, this difference disappears with age and thus seniority in the professional career.

Keywords: sequential risk taking, professionals, escalation of commitment, sunk cost fallacy, under-commitment to investment

JEL Classification: C91, D81, D91