Impact of Decision Goal on Escalation Niklas Karlsson, E. Ásgeir Juliusson, Gunne Grankvist, and Tommy Gärling —————————————————————— Abstract This research investigated the sunk-cost effect or escalation defined as the irrational tendency in decision making to continue to invest money, time, or effort following unsuccessful investments. Building on previous research demonstrating loss-sensitivity effects in sequential decision making, in three experiments employing undergraduates responding to decision scernarios the hypothesis was investigated that a loss-minimization goal would lead to stronger effects of sunk outcomes than would a gain -maximizing goal. Although the tendency to continue investments was always greater for gain-maximizing than for loss-minimizing instructions, the sunk- outcome effect was stronger in the former case when the decision context was business investments involving large amounts of money. However, when the decisions concerned personal and lower stakes, the expected stronger effect of sunk outcomes was found for loss- minimizing instructions. Another finding was that both escalation and de-escalation occurred. Furthermore, expected value was never ignored, thus suggesting that future research should focus on how expected value and sunk outcomes jointly influence decisions to continue or discontinue. Key words : Decision making, escalation , sunk cost —————————————————————— The tendency to continue to invest money, time, or effort following unsuccessful investments or sunk costs is referred to as the sunk-cost effect (Arkes & Blumer, 1985) or escalation (Staw, 1976, 1997). To take sunk costs into account in making decisions is not rational (Dawes, 1988). It is always better to choose the alternative expected to give the most beneficial future returns irrespective of whether or not this is the alternative in which previous investments have been made. Nevertheless, this type of irrationality has been widely observed (Arkes & Ayton, 1999). _____________________________________________________________ Author note: This research was financially supported by grant # #98-0131 to Tommy Gärling from the Bank of Sweden Tercentenary Foundation.