A Meta-Analysis Comparing the Sunk Cost Effect for IT and Non-IT Projects

A Meta-Analysis Comparing the Sunk Cost Effect for IT and Non-IT Projects

Jijie Wang (Georgia State University, USA)
DOI: 10.4018/978-1-60566-128-5.ch010
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Escalation is a serious management problem, and sunk costs are believed to be a key factor in promoting escalation behavior. While many laboratory experiments have been conducted to examine the effect of sunk costs on escalation, there has been no effort to examine these studies as a group in order to determine the effect size associated with the so-called “sunk cost effect.” Using meta-analysis, we analyzed the results of 20 sunk cost experiments and found: (1) a large effect size associated with sunk costs, and (2) stronger effects in experiments involving information technology (IT) projects as opposed to non-IT projects. Implications of the results and future research directions are discussed.
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The amount of money already spent on a project (level of sunk cost), together with other factors, can bias managers’ judgment, resulting in “escalation of commitment” behavior (Brockner, 1992) in which failing projects are permitted to continue. Project escalation can absorb valuable resources without producing the intended results. While escalation is a general phenomenon occurring with any type of project, software projects may be particularly susceptible to this problem (Keil et al., 2000a).

Prior research has identified psychological as well as other factors that can promote escalation (Staw & Ross, 1987). The sunk cost effect is a psychological factor that can promote escalation and refers to the notion that people have a greater tendency to continue a project once money, time, and effort have been invested (Arkes & Blumer, 1985).

There are several possible explanations for the sunk cost effect. Chief among these is prospect theory (Brockner, 1992; Kahneman & Tversky, 1979), which suggests that people will choose to engage in risk-seeking behavior when faced with a choice between losses. According to prospect theory, people will prefer to make additional investments (even when the payoff is uncertain) rather than terminating a project and “losing” all of the monies already spent.

In the context of software projects, the intangible nature of the product (Abdel-Hamid & Madnick, 1991) can make it difficult to estimate the amount of work completed. This difficulty manifests itself in the “90% complete syndrome”1, which may promote the sunk cost effect by giving a false perception that most of the required money, time, and effort have already been expended.

To investigate the sunk cost effect, researchers have conducted many role-playing experiments in which sunk cost levels are manipulated to determine if they have an effect on decision-making (e.g., Garland, 1990;Garland & Newport, 1991). These published experiments suggest that there is broad agreement that sunk cost increases commitment to projects. However, there are a couple of unanswered questions. First, while prior studies have conducted statistical significance testing, they do not provide much information about the magnitude of the sunk cost effect. Second, although there have been claims that IT projects are more prone to the sunk cost effect, there have been no prior studies to determine if the magnitude of the sunk cost effect is larger in an IT project context than it is in a non-IT project context.

Meta-analysis, a literature review method using a quantitative approach, is very good at assessing a stream of research, discovering the consistencies, and accounting for the variability. Therefore, in this study, we conduct a meta-analysis to determine the mean effect size of sunk cost on project escalation and examine variability of effect sizes across experiments. We also examine whether the effect size of the sunk cost effect on project escalation is different for IT vs. non-IT project contexts.

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Associate Editors
Table of Contents
Mehdi Khosrow-Pour
Chapter 1
Manuel Mora, Ovsei Gelman, Guisseppi Forgionne, Doncho Petkov, Jeimy Cano
A formal conceptualization of the original concept of system and related concepts—from the original systems approach movement—can facilitate the... Sample PDF
Integrating the Fragmented Pieces of IS Research Paradigms and Frameworks: A Systems Approach
Chapter 2
Steven Alter
The work system method was developed iteratively with the overarching goal of helping business professionals understand IT-reliant systems in... Sample PDF
Could the Work System Method Embrace Systems Concepts More Fully?
Chapter 3
Alfonso Reyes A.
This chapter is concerned with methodological issues. In particular, it addresses the question of how is it possible to align the design of... Sample PDF
The Distribution of a Management Control System in an Organization
Chapter 4
Phillip Dobson
This chapter seeks to address the dearth of practical examples of research in the area by proposing that critical realism be adopted as the... Sample PDF
Making the Case for Critical Realism: Examining the Implementation of Automated Performance Management Systems
Chapter 5
Jo Ann Lane
As organizations strive to expand system capabilities through the development of system-of-systems (SoS) architectures, they want to know “how much... Sample PDF
System-of-Systems Cost Estimation: Analysis of Lead System Integrator Engineering Activities
Chapter 6
Kosheek Sewchurran, Doncho Petkov
The chapter provides an action research account of formulating and applying a new business process modeling framework to a manufacturing processes... Sample PDF
Mixing Soft Systems Methodology and UML in Business Process Modeling
Chapter 7
Aidan Duane, Patrick Finnegan
An email system is a critical business tool and an essential part of organisational communication. Many organisations have experienced negative... Sample PDF
Managing E-Mail Systems: An Exploration of Electronic Monitoring and Control in Practice
Chapter 8
Stephen V. Stephenson, Andrew P. Sage
This chapter provides an overview of perspectives associated with information and knowledge resource management in systems engineering and systems... Sample PDF
Information and Knowledge Perspectives in Systems Engineering and Management for Innovation and Productivity through Enterprise Resource Planning
Chapter 9
Gunilla Widén-Wulff, Reima Suomi
This chapter works out a method on how information resources in organizations can be turned into a knowledge sharing (KS) information culture, which... Sample PDF
The Knowledge Sharing Model: Stressing the Importance of Social Ties and Capital
Chapter 10
Jijie Wang
Escalation is a serious management problem, and sunk costs are believed to be a key factor in promoting escalation behavior. While many laboratory... Sample PDF
A Meta-Analysis Comparing the Sunk Cost Effect for IT and Non-IT Projects
Chapter 11
Georgios N. Angelou
E-learning markets have been expanding very rapidly. As a result, the involved senior managers are increasingly being confronted with the need to... Sample PDF
E-Learning Business Risk Management with Real Options
Chapter 12
C. Ranganathan
Research on online shopping has taken three broad and divergent approaches viz, human-computer interaction, behavioral, and consumerist approaches... Sample PDF
Examining Online Purchase Intentions in B2C E-Commerce: Testing an Integrated Model
Chapter 13
Nicholas C. Georgantzas
This chapter combines disruptive innovation strategy (DIS) theory with the system dynamics (SD) modeling method. It presents a simulation model of... Sample PDF
Information Technology Industry Dynamics: Impact of Disruptive Innovation Strategy
Chapter 14
Shana L. Dardan, Ram L. Kumar, Antonis C. Stylianou
This study develops a diffusion model of customer-related IT (CRIT) based on stock market announcements of investments in those technologies.... Sample PDF
Modeling Customer-Related IT Diffusion
Chapter 15
Bassam Hasan, Jafar M. Ali
The acceptance and use of information technologies by target users remain a key issue in information systems (IS) research and practice. Building on... Sample PDF
The Impact of Computer Self-Efficacy and System Complexity on Acceptance of Information Technologies
Chapter 16
James Jiang, Gary Klein, Eric T.G. Wang
The skills held by information system professionals clearly impact the outcome of a project. However, the perceptions of just what skills are... Sample PDF
Determining User Satisfaction from the Gaps in Skill Expectations Between IS Employees and their Managers
Chapter 17
James Jiang, Gary Klein, Phil Beck, Eric T.G. Wang
To improve the performance of software projects, a number of practices are encouraged that serve to control certain risks in the development... Sample PDF
The Impact of Missing Skills on Learning and Project Performance
Chapter 18
Leigh Jin, Daniel Robey, Marie-Claude Boudreau
Open source software has rapidly become a popular area of study within the information systems research community. Most of the research conducted so... Sample PDF
Beyond Development: A Research Agenda for Investigating Open Source Software User Communities
Chapter 19
Milam Aiken, Linwu Gu, Jianfeng Wang
In the literature of electronic meetings, few studies have investigated the effects of topic-related variables on group processes. This chapter... Sample PDF
Electronic Meeting Topic Effects
Chapter 20
A. Durfee, A. Visa, H. Vanharanta, S. Schneberger, B. Back
Text documents are the most common means for exchanging formal knowledge among people. Text is a rich medium that can contain a vast range of... Sample PDF
Mining Text with the Prototype-Matching Method
Chapter 21
Francis Kofi Andoh-Baidoo, Elizabeth White Baker, Santa R. Susarapu, George M. Kasper
Using March and Smith’s taxonomy of information systems (IS) research activities and outputs and Newman’s method of pro forma abstracting, this... Sample PDF
A Review of IS Research Activities and Outputs Using Pro Forma Abstracts
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