Scandinavian Working Papers in Economics

CISEG Working Papers Series,
Jönköping International Business School, Centre for Innovation Systems, Entrepreneurship and Growth

No 3: Escalation of Commitment in Investment Decisions: The Role of Emotions under Uncertainty

Ethel Brundin () and Veronica Gustavsson ()
Additional contact information
Ethel Brundin: Jönköping International Business School, Postal: P.O. Box 1026, SE-551 11 JÖNKÖPING, Sweden
Veronica Gustavsson: Jönköping International Business School, Postal: P.O. Box 1026, SE-551 11 JÖNKÖPING, Sweden

Abstract: The purpose of this study is to better understand whether emotional aspects affect entrepreneurs’ and owner-managers’ decisions in investment situations when escalation of commitment can be observed and where the level of uncertainty was also added to the emotional aspect. The study was performed using conjoint analysis (a.k.a stated preference technique) and yielded following results: positive emotions (self-confidence, challenge, and hope) increase the decision-maker’s propensity to escalate commitment. Negative emotions (embarrassment and strain) do not, on the other hand, make the entrepreneur prone to escalate. The result remains the same for all positive emotions where an increasing level of uncertainty tends to make the entrepreneur more prone to escalate. Strain and embarrassment, under high uncertainty, decrease the tendency to escalate. All results are significant except for frustration that does not show any significant relationship. The combination of cognitive decision theories and emotional theories enhances our knowledge about the emotive side of entrepreneurs’ motives to escalate. The results also enable us to supplement and refine existing theories on self-justification.

Keywords: Emotions; Escalation of commitment; Uncertainty; Entrepreneurs

JEL-codes: M19

20 pages, December 5, 2008

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