The econometrics and behavioral economics of escalation of commitment: a re-examination of Staw and Hoang's NBA data

We examine the phenomenon of escalation from an economist's perspective, em phasizing explanations which do not rule out rational behavior on the part of firms or agents. We argue that escalation cannot be established as a sep arate phenomenon unless these possible alternative explanations are properl y accounted for. We present Staw and Hoang's (1995) study of NEA data as an instance of where evidence of escalation might be overturned upon more car eful analysis. After performing several tests of our alternative explanatio ns, we find that evidence of escalation persists, although it is weaker bot h in duration and magnitude. (C) 1999 Elsevier Science B.V. All rights rese rved. JEL classification: D23.