A study of escalating commitment in principal–agent relationships: Effects of monitoring and personal responsibility.

TLDR

Prior research on escalating commitment often used designs that eliminated genuine accountability and ignored real principal–agent relationships. This study investigates how principal monitoring affects agents’ escalation of commitment. Participants acted as agents in real principal–agent setups with systematically varied monitoring of their investment choices. Monitoring reduced agents’ escalation and risky investment choices, yet responsible agents still escalated when alternatives were available, and responsibility did not alter their preference for risky strategies.

Abstract

Some previous studies of escalating commitment required participants to make decisions that preclude any genuine accountability for their actions and ignore the fundamental agency relationships in which organizational decision making normally occurs. The present laboratory experiment examines the impact of principal monitoring on agent escalation tendencies. Participants were placed in actual, rather than hypothetical, principal-agent relationships in which monitoring of agent investment choices was systematically varied. Results indicated that monitoring deterred agents from escalating commitment and from pursuing risky investment strategies. Responsible participants demonstrated classical escalation tendencies despite having both conservative and risky investment alternatives to the original course of action. However, responsibility did not affect the tendency to prefer risky strategies.