A Contingency Model of Response to Performance Feedback: Escalation of Commitment and Incremental Adaptation in Resource Investment Decisions

This study examines patterns of strategic resource allocation decisions and performance feed-back over time for evidence of both incremental adaptation and escalation of commitment. The investment decisions of 20 teams participating in the management simulation MARKSTRAT are examined. The participants were managers enrolled in an executive education program and M.B.A. students. A contingent model of responses to performance feedback is introduced that includes the moderating factors of prior resource commitments, consecutive periods of positive or negative feedback, and performance distance from aspiration. Evidence is found for both incremental adaptation and escalation of commitment. The implication of this study is that responses to performance feedback should be viewed as contingent on a number of factors, such as distance from aspirations and sunk costs associated with a decision.