Abstract

The tendency of decision-makers to “stay the course” and continue with a course of action that is failing to accomplish optimal financial results is a phenomenon known as financial escalation of commitment (Staw, 1976, 1981; Staw & Ross, 1978). Persevering with an initially unsuccessful course of action sometimes leads to eventual financial success, but it often leads to chronic financial under-performance (DeTienne, Shepherd, & Castro, 2008) and/or bankruptcy (Daily & Dalton, 1994). It is surprising how often different decision-makers facing the same type of decision – subject to the same constraints and privy to the same information – come to different conclusions about what course of action is most likely to produce optimal financial results. This research presents new empirical results which demonstrate how certain cognitive antecedents help to explain why some small, family-owned entrepreneurial firms are more profitable than others.

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