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Author: | Kanodia, C. Bushman, R. Dickhaut, J. |
Title: | Escalation errors and the sunk cost effect: an explanation based on reputation and information asymmetries. |
Journal: | Journal of Accounting Research
1989 : SPRING, VOL. 27:1, p. 59-77 |
Index terms: | COSTS MANAGEMENT CONTROL DECISION MAKING INDIVIDUAL BEHAVIOUR INCENTIVES |
Language: | eng |
Abstract: | Escalation errors or sunk cost effects refer to a process, when a manager continues using old equipment not yet amortized rather than switching to a new and more profitable equipment. Earlier explanations relied exclusively on psychological factors like psychic accounting, framing etc. The present paper explains the phenomena as a special case of hiding private information on human capital. In the special case the manager clings to his old choice to hide his error committed by choosing the old project. |
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