De-escalation of commitment in oil exploration : when sunk costs and negative feedback coincide

Three experiments were conducted to examine the combined effects of sunk costs and negative feedback on decisions to escalate or withdraw from a petroleum-exploration venture. In Experiments 1 and 2, petroleum geologists responded to scenarios in which from 1 to 4 dry wells had been drilled. Number of dry wells was manipulated both between subjects (Experiment 1) and within subjects (Experiment 2). Contrary to earlier research, the higher the sunk cost (i.e., the greater the number of dry wells), the less likely geologists were to authorize funds to continue with the venture and the lower their estimates were of the likelihood that the next well would be productive. In Experiment 3, university students responded to our oil-drilling scenarios. Results of this experiment were in the same direction as that found with the geologists but were considerably weaker and were not statistically significant.

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