Working paper/research report

Authors list: Sabel, Rebecca; Gerstel, Hannes; Wöhrmann, Arnt

Publication year: 2023

DOI Link: https://doi.org/10.2139/ssrn.4612879

Abstract: 

Innovations and efficient resource allocations are essential for firm success. However, managers’ “fear of failure” often prevents firms from achieving these goals. To counteract this fear, firms have started granting Failure Awards. Failure Awards reward managers who initiate a promising but risky idea or project that eventually had to be terminated when failure became imminent. In this study, we examine whether Failure Awards promote risk-taking and simultaneously reduce resource wastage by mitigating escalation of commitment (EoC). We conduct an experiment in which we manipulated whether a Failure Award was present or absent. In the Failure Award pre-sent treatments, we manipulated whether the Failure Award emphasized risk-taking (innovation-type Failure Award) or the early termination of failing projects (discontinuation-type Failure Award). In line with our predictions, we find that Failure Awards increase risk-taking, irrespective of the type. Furthermore, we find that EoC is significantly reduced if the Failure Award emphasizes discontinuation but not if it promotes risk-taking.

Harvard Citation style: Sabel, R., Gerstel, H. and Wöhrmann, A. (2023) Celebrating Failure: The Effects of Failure Awards on Risk-Taking and Escalation of Commitment. https://doi.org/10.2139/ssrn.4612879

APA Citation style: Sabel, R., Gerstel, H., & Wöhrmann, A. (2023). Celebrating Failure: The Effects of Failure Awards on Risk-Taking and Escalation of Commitment. https://doi.org/10.2139/ssrn.4612879