Project Escalation and Sunk Costs: A test of the International Generalizability of Agency and Prospect Theories

Previous North American research suggests that aspects of agency theory and prospect theory may explain decisions to escalate commitment to failing projects. This study explores the universality of these theories in this context. The willingness of North American and Asian managers to escalate commitment to losing projects was measured using four go/no-go decision cases. We hypothesized that Asian managers would be less willing to act in their self-interest (a lower agency effect), and would be more willing to escalate a decision in the face of negative framing (a stronger framing effect). We found that agency theory had strong explanatory power for project in our Asian sample. Framing effects were significant in both, but they were not significantly different.