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Article
Publication date: 1 February 2013

Maarten E.J. Rutten, André G. Dorée and Johannes I.M. Halman

The purpose of this article is to explore the ability of a novel psychological theory of how people make decisions, narrative‐based decision theory, to help explain…

Abstract

Purpose

The purpose of this article is to explore the ability of a novel psychological theory of how people make decisions, narrative‐based decision theory, to help explain people's decisions about whether to continue investment in a research and development (R&D) project (R&D progress decisions).

Design/methodology/approach

The paper applies the new theory to an empirical finding of existing research on R&D progress decisions; the finding that instruction in the sunk cost principle seems to mitigate the sunk cost effect in R&D progress decision‐making.

Findings

By interpreting the empirical finding in terms of narrative‐based decision theory, the paper is able to clarify and extend an earlier explanation for the empirical finding. More specifically, by drawing on narrative‐based decision theory the paper is able to provide a more detailed explanation of how the predictor variable (sunk cost) and the moderator variable (instruction in the sunk cost principle) may exert an influence.

Research limitations/implications

Based on the result of the exploration, the authors call for further investigations into narrative‐based decision theory's value in explaining R&D progress decisions, and other management decisions.

Practical implications

Furthermore, the authors call for investigations into how narrative‐based decision theory may help decision‐makers in improving the quality of R&D progress decisions.

Originality/value

Narrative‐based decision theory is a recent theory from the field of naturalistic decision‐making. To the authors' knowledge, this is the first article that, by using an example, illustrates how the theory may help in explaining the findings of empirical research on management decisions.

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Book part
Publication date: 3 July 2017

Alan Reinstein, Mohamed E. Bayou, Paul F. Williams and Michael M. Grayson

Compare and contrast how the accounting, organizational behavior and other literatures analyze sunk costs. Sunk costs form a key part of the decision-making component of…

Abstract

Purpose

Compare and contrast how the accounting, organizational behavior and other literatures analyze sunk costs. Sunk costs form a key part of the decision-making component of the management accounting literature, which generally include previously incurred and unrecoverable costs. Management accountants believe, since current or future actions cannot change sunk costs, decision makers should ignore them. Thus, ongoing fixed costs or previously incurred sunk costs, while relevant for matters of accountability such as costing, income determination, and performance evaluation are irrelevant for most short- and long-term decisions. However, the organizational behavior literature indicates that sunk costs affect decision makers’ actions – especially their emotional attachments to the related project and the asymmetry of attitudes regarding the recognizing of losses and gains. Called the “sunk cost effect” or “sunk cost fallacy,” this conflict in sunk costs’ underlying nature reflects one element of incoherence in contemporary accounting discourse. We discuss this sunk cost conflict from an accounting and a philosophical perspective to denote some ambiguities that decision usefulness and accountability introduces into accounting discourse.

Methodology/approach

Review, summarize and analyze the above literatures

Findings

Managerial accountants can apply many lessons from the various literature sources.

Originality/value

We also show how differing opinions on how to treat sunk costs impact a firm’s decision-making process both economically and socially.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-78714-530-6

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Article
Publication date: 1 April 2015

Claudio Hoffmann Sampaio, Jefferson Dobner Sordi and Marcelo Gattermann Perin

This paper investigates the transaction decoupling phenomenon in purchase and consumption of football match tickets. The theoretical approach describes several economical…

Abstract

This paper investigates the transaction decoupling phenomenon in purchase and consumption of football match tickets. The theoretical approach describes several economical constructs behind individual decision-making behaviour, including sunk costs, mental accounting and coupling. Results indicate that people who buy bundled tickets are less likely to use their tickets than those who purchase individual ones. Furthermore, the phenomenon proved to be a valid theory in an actual Brazilian football ticket purchase and consumption scenario, confirming that rational elements can also be part of sports consumption. Thus, it can be stated that the type of purchase (bundle or single tickets) influences consumer decision-making.

Details

International Journal of Sports Marketing and Sponsorship, vol. 16 no. 3
Type: Research Article
ISSN: 1464-6668

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Article
Publication date: 7 March 2019

Shivendra Kumar Pandey and Dheeraj Sharma

The purpose of this paper is to examine the sunk-time fallacy in the context of simultaneous variations of time and money when financial expenditures are recoverable. The…

Abstract

Purpose

The purpose of this paper is to examine the sunk-time fallacy in the context of simultaneous variations of time and money when financial expenditures are recoverable. The study compares a recoverable monetary scenario with conditions where money is either not spent or spent, but purchase and payment are decoupled.

Design/methodology/approach

A sample of 184 participants was utilised in three experiments. A randomised design was used, and experimental manipulations were achieved using the vignette method.

Findings

The results indicate that consumers are susceptible to sunk-time fallacy. Specifically, results suggest that there is no significant difference in sunk cost fallacy when a consumer spends only time vs when a consumer spends money and time both but money can be recovered. The sunk-time fallacy did not occur in credit card purchases. The sunk-time fallacy did not happen in temporal investments of less than a week but appeared in the temporal investments of two weeks.

Research limitations/implications

The study indicates that sunk-time fallacy occurs after a minimum threshold of time is spent on a particular activity.

Practical implications

Online retailers may vary the delivery period of ordered merchandise to reduce product returns. Online retailers may not deliver the merchandise too early to take advantage of the sunk-time fallacy. Bestseller products should be quickly delivered as there are lesser chances of product return. On the other hand, new products or products with mixed consumer reviews should be provided preferably with a time lag beyond a week. Managers should incentivise payments through debit card/net banking and cash-on-delivery to reduce returns by using sunk-time fallacy.

Originality/value

The study is perhaps the first one to study the sunk-time fallacy in a simultaneous variation of time and money where monetary costs can be recovered fully.

Details

Marketing Intelligence & Planning, vol. 37 no. 2
Type: Research Article
ISSN: 0263-4503

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Article
Publication date: 13 September 2011

Zhong Zhou and Zhigao Chen

Based on definition and characteristic analysis, this paper seeks to propose a formation mechanism of knowledge rigidity, which is constituted by the effects of three

Abstract

Purpose

Based on definition and characteristic analysis, this paper seeks to propose a formation mechanism of knowledge rigidity, which is constituted by the effects of three precipitating factors: time‐effectiveness of knowledge, reinforcing effectiveness, and sunk cost effect in knowledge selection mechanism.

Design/methodology/approach

By presenting knowledge time‐effectiveness model, reinforcing effectiveness model, and knowledge selection mechanism, the paper theoretically analyzes firms' rigid behavior of knowledge application. Theories of increasing returns and sunk cost are introduced to explain the formation process of knowledge rigidity in firms. Two cases are presented to analyze the knowledge rigidity in industrial firms basing on the proposed models and mechanism.

Findings

First, the lifecycle of knowledge rigidity is dynamically defined by knowledge time‐effectiveness. Second, the degree of rigidity and firm's dependence on specific knowledge are enhanced by reinforcing effectiveness during the process of application. At the end of the life cycle, the sunk cost mainly hinders a firm's decision making to replace ineffective knowledge.

Research limitations/implications

Quantitative research is needed to further explore the formation mechanism of knowledge rigidity and to present operational approaches for practitioners. The proposed models and mechanism are useful for understanding the knowledge rigidity and analyzing its formation mechanism in firms.

Practical implications

This paper provides theoretical support to realize knowledge rigidity in KM practice. Three indicators were proposed to evaluate the rigidity and action suggestions were given to help control knowledge rigidity in firms.

Originality/value

Causal analysis models and a formation mechanism are proposed to show how knowledge rigidity forms.

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Book part
Publication date: 31 January 2015

Qun Tan and Carlos M. P. Sousa

Although research on foreign market entry and expansion behavior has attracted significant interest in the literature, there is a general lack of research (either…

Abstract

Although research on foreign market entry and expansion behavior has attracted significant interest in the literature, there is a general lack of research (either conceptual or empirical) on the exit behavior of international companies. To address this issue, the authors develop a conceptual framework to understand firms’ foreign exit behavior. The objective is to lay the conceptual foundation for subsequent empirical research in this area. A series of research propositions have been advanced that can guide hypothesis generation for future research.

Details

Entrepreneurship in International Marketing
Type: Book
ISBN: 978-1-78441-448-1

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Article
Publication date: 13 November 2017

Dmitriy V. Chulkov

This study aims to explore the challenges that the escalation of commitment poses to information security.

Abstract

Purpose

This study aims to explore the challenges that the escalation of commitment poses to information security.

Design/methodology/approach

Two distinct scenarios of escalation behavior are presented based on literature review. Psychological, organizational and economic theories on escalation of commitment are reviewed and applied to the area of information security.

Findings

Escalation of commitment involves continuation of a course of action after receiving negative information about it. In the information security compliance context, escalation affects a firm when an employee decides to break the firm’s information security policy to complete a failing task. In the information security investment context, escalation occurs if a manager continues investment in policies and solutions that are ineffective because of psychological, organizational or economic factors. Both of these types of escalation may be prevented with de-escalation techniques including a change in management or rotation of duties, monitoring, auditing and governance mechanisms.

Practical implications

Implications of escalation of commitment behavior for information security decision-makers and for future research are discussed.

Originality/value

This study complements the literature by establishing the context of escalation of commitment in decisions related to information security and reviewing managerial and economic theories on escalation of commitment.

Details

Information & Computer Security, vol. 25 no. 5
Type: Research Article
ISSN: 2056-4961

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Article
Publication date: 1 July 1989

Marcia Kassner and Bruce J. Eberhardt

What makes managers choose to continue taking classes and seminars to further their management development? In the past twenty years, motivated and behavioural theory has…

Abstract

What makes managers choose to continue taking classes and seminars to further their management development? In the past twenty years, motivated and behavioural theory has been applied to the career decision‐making process in management development. Two approaches, expectancy theory and, to a lesser extent, justification processes have been investigated. The major difference between the two approaches is that expectancy theory suggests that managers are primarily forward‐looking in their careers and management development, whereas justification takes the position that managers attempt to make present career behaviours consistent with past career actions.

Details

Management Research News, vol. 12 no. 7
Type: Research Article
ISSN: 0140-9174

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Article
Publication date: 1 April 2005

Michael Nwogugu

To: evaluate Prospect Theory and Cumulative Prospect Theory as functional models of decision making and risk within various contexts; compare and analyze risk models and…

Abstract

Purpose

To: evaluate Prospect Theory and Cumulative Prospect Theory as functional models of decision making and risk within various contexts; compare and analyze risk models and decision‐making models; evaluate models of stock risk developed by Robert Engle and related models; establish whether the models are related and have the same foundations; relate risk, decision making and options theory; and develop the foundations for a new model of decision making and risk named “belief systems”.

Design/methodology/approach

Critiques existing academic work in different contexts. Analyzes the shortcomings of various measures of risk, and group decision making, which was not addressed in developing Prospect Theory and Cumulative Prospect Theory. Develops the characteristics of a mew model for decision making and risk named “belief systems”, and then differentiates it from belief networks.

Findings

Decision making is a multi‐factor, multi‐dimensional process that often requires the processing of information, and thus, it is inaccurate to impose rigid models in decision making; the existing metrics for quantifying risk are inadequate; Prospect Theory and Cumulative Prospect Theory were developed using questionable methods and data, and are impractical; the analysis of probabilistic insurance and most of the theories and “effects” developed by Kahneman and Tversky's articles are invalid and impractical; Prospect Theory, Cumulative Prospect Theory, Expected Utility Theory, and market‐risk models are conceptually the same and do not account for many facets of risk and decision making; risk and decision making are better quantified and modeled using a mix of situation‐specific dynamic, quantitative and qualitative factors; belief systems can better account for the multi‐dimensional characteristics of risk and decision making.

Research limitations/implications

Areas for further research include: development of dynamic market‐risk models that incorporate asset‐market psychology, liquidity, market size, frequency of trading, knowledge differences among market participants, and trading rules in each market; and further development of concepts in belief systems.

Practical implications

Decision making and risk assessment are multi‐criteria processes that typically require some processing of information, and thus cannot be defined accurately by rigid quantitative models; Prospect Theory and Cumulative Prospect Theory are abstract, rigid, and are not practical models for decision making; and existing market‐risk models are inaccurate, and thus the international financial system may be compromised.

Originality/value

The issues discussed are relevant to government regulators, central banks, judges, risk managers, executives, derivatives regulators, stock exchange regulators, legislators, psychologists, boards of directors, finance professionals, management science/operations research professionals, health‐care‐informatics professionals, scientists, engineers, and people in any situation that requires decision making and risk assessment.

Details

The Journal of Risk Finance, vol. 6 no. 2
Type: Research Article
ISSN: 1526-5943

Keywords

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Article
Publication date: 2 September 2014

Lynn A. Walter, Linda F. Edelman and Keneth J. Hatten

This paper aims to investigate how dynamic capabilities enabled survival in a select group of brewers, during one of the lengthiest and most severe industry consolidations…

Abstract

Purpose

This paper aims to investigate how dynamic capabilities enabled survival in a select group of brewers, during one of the lengthiest and most severe industry consolidations in history. In doing so, we advance Abell’s (1978) theory of strategic windows through integration with the resource-based view of the firm.

Design/methodology/approach

Using a mixed method approach, we first apply case study methods to develop hypotheses around the timing and level of operational capability required for survival. In the second phase, we test these hypothesized estimations on the USA Brewing population.

Findings

Indicate that brewers which had advanced distribution and manufacturing operational capabilities before the strategic window of opportunity closed had higher survival rates.

Practical implications

This study reinforces the importance of making timely strategic investments in capabilities.

Originality/value

The integration of strategic window and capability theories advances our understanding of the roles that capabilities and time play in determining firm survival.

Details

Journal of Management History, vol. 20 no. 4
Type: Research Article
ISSN: 1751-1348

Keywords

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