Deciding to sell: The eect of prior inaction and oer source
Adam Butler a,*, Scott Highhouseb a
Department of Public and Environmental Aairs, University of Wisconsin-Green Bay, USA
b
Department of Psychology, Bowling Green State University, USA
Received 6 July 1998; received in revised form 16 June 1999; accepted 3 November 1999
Abstract
Recent research has shown that decision makers are less likely to accept an opportunity after failing to act on a previous oer, an eect labeled inaction inertia. We extended the original research by examining the phenomenon in the domain of losses as well as in the domain of gains. A pattern consistent with the inaction inertia eect was found for gains but not for losses. We also manipulated the source of the second oer and found that evaluations of gains decreased after inaction regardless of source, but evaluations of losses increased when the second oer came from a dierent source. Evaluations of the oer were highly correlated with ratings of anticipated regret, suggesting that the avoidance of negative emotions may be partially responsible for the eect. Ó 2000 Elsevier Science B.V. All rights reserved.
PsycINFO classi®cation:3660; 3020; 3920
JEL classi®cation:D23; E49
Keywords:Inaction inertia; Regret; Decision making persistence
www.elsevier.com/locate/joep
*Corresponding author. Present address: Department of Psychology, University of Northern Iowa,
Cedar Falls, IA 50614-0505, USA. Tel.: +1-319-273-7293; fax: +1-319-273-6188. E-mail address:[email protected] (A. Butler).
1. Introduction
The tendency to persist in a state of action is a well-known phenomenon in psychology. Research on compliance, for instance, demonstrates that an initial action can induce commitment to a subsequent action undertaken at a higher cost (Beaman, Cole, Preston, Klentz & Steblay, 1983). Research on decision making shows that individuals who sustain a loss as a result of their action escalate their commitment to the course of action (Staw, 1981). Re-cently, Tykocinski, Pittman and Tuttle (1995) found a similar eect operating in cases of inaction. That is, when individuals failed to act on a decision opportunity, they were likely to persist in the course of inaction when con-fronted with a subsequent decision, an eect labeled ``inaction inertia''.
In their original studies of inaction inertia, Tykocinski et al. (1995) found that participants who failed to act on an initial opportunity were less likely to act on a second, somewhat less desirable opportunity compared to partici-pants who did not experience inaction. In one of their vignettes, participartici-pants were given the opportunity to enroll in a frequent ¯ier program which would earn a free ticket with the accumulation of 20,000 miles. Participants were told that if they joined the program, they would earn 5500 miles. In the prior inaction condition, participants were told that they passed on the opportu-nity to join the program earlier in the year which would have earned them 10,000 miles. Inaction inertia was demonstrated when participants in the prior inaction condition were signi®cantly less likely to join the program than participants with no prior inaction. The authors replicated the inaction in-ertia eect in monetary and non-monetary scenarios and also behaviorally in a gambling decision.
1.1. Theoretical explanations of inaction inertia
Tykocinski et al. (1995) tested the mental accounting explanation by ma-nipulating the salience of the future gain or foregone opportunity. Attention was focussed on future gains by telling participants that they could still earn free miles by accepting the oer. Attention was focused on foregone bene®ts by telling participants that they lost free miles by not accepting the initial oer. A third group of participants did not receive any framing manipulation. Tykocinski et al. found that participants in the loss frame and control con-ditions were less likely to accept the second opportunity than participants who received a gain frame. Thus, in the absence of any framing information, the second opportunity may automatically be perceived as a loss.
An alternative, motivationally based explanation is that inaction inertia represents an attempt to avoid the emotional experience of regret. Regret theory assumes that decision makers compare actual outcomes to other, foregone outcomes and feel regret if the foregone outcome is superior to the actual (Loomes & Sugden, 1982). The theory further assumes that emotions are anticipated prior to choice and that they in¯uence decisions. Numerous studies indicate that decision makers make choices that minimize anticipated regret (Zeelenberg, 1999; Zeelenberg, Beattie, Pligt & Vries, 1996).
The experience of regret is based on imagined alternative outcomes, and one factor which in¯uences the imagination of alternatives is whether the actual outcome resulted from action or inaction. Research demonstrates that, in the short term, action is regretted more than inaction because it is much easier to imagine counterfactual alternatives after an action (Gilovich & Medvec, 1995; Kahneman & Miller, 1986; Zeelenberg, van der Pligt & Manstead, 1998). For example, a person who decides to enroll in the frequent ¯ier program after failing to enroll earlier is more likely to be plagued by ``if only'' type thoughts than one who never enrolls. By not acting, the decision maker reduces the possibility of imagining what might have been and thereby minimizes the negative emotional experience of regret (Tykocinski & Pitt-man, 1998).
initial, foregone purchasing opportunity was geographically closer and, therefore, more dicult to avoid.
These studies suggest that inaction is a strategy that allows decision makers to avoid the missed opportunity and, in eect, reduce the experience of counterfactual regret.
1.2. The present study
We sought to extend the original research by Tykocinski and his colleagues (Tykocinski et al., 1995; Tykocinski & Pittman, 1998) in several ways. First, we examined whether inaction inertia occurs in the domain of losses as well as gains. Although participants in the Tykocinski et al. (1995) studies ap-peared to frame outcomes as losses, they were nevertheless faced with ab-solute gains in all of the experimental conditions. It is unclear whether this phenomenon occurs when people are facing clear losses or are in the loss domain. Consider, for example, a situation in which a stock holder learns that her stock has declined in value one dollar per share. Instead of selling, the stockholder decides to hold ®rm, only to ®nd that the stock has declined another dollar the following day. Would this person be less likely to sell the stock than one who learns that his stock has declined two dollars per share? The answer to this question is not straightforward. On the one hand, we might expect that the second stock holder perceives a two dollar loss per share, whereas the ®rst may perceive both the overall loss plus a one dollar loss from the previous day. This would likely result in the inaction inertia found by Tykocinski et al. (1995). On the other hand, one might argue that the stock holder who passed on the initial opportunity to sell shifted her reference point down to minus one dollar. In the same way that an absolute gain is perceived as a relative loss after a more attractive missed gain, an absolute loss might be perceived as relatively smaller following a previous loss. Thus, the second loss in the example would be perceived as only an incremental loss of one dollar (compared to the two dollar loss experienced by the second stock holder). This might result in no inaction inertia for the ®rst stock holder.
subsequent oers. One might expect that presenting the second oer as coming from a dierent source would weaken the eect. That is, participants should be less likely to use the ®rst oer as a reference point when it came from a dierent source than the second oer.
In addition to examining evaluations of the oer, we also examined an-ticipated regret. Tykocinski and Pittman (1998) measured regret in one of their four studies using a thought listing procedure. In the present study, we developed a scale to directly measure anticipated regret. As a replication of Tykocinski and Pittman (1998), we predicted that inaction inertia (i.e., lower evaluations) would be associated with feelings of greater anticipated regret. Extending the work of Tykocinski and Pittman (1998), we predicted that receiving a second oer from a dierent source would reduce feelings of anticipated regret. This eect may occur because the counterfactual alter-native (i.e., the ®rst oer) may be less salient when the second oer is received from a dierent source rather than the same source. That is, an individual who accepts a second oer from a dierent source may be reminded less often about ``what might have been'' than one who accepts a second oer from the same source. We were interested in exploring the eect of domain on regret but, given a lack of previous research, we did not advance any speci®c hy-pothesis for that manipulation.
2. Method
2.1. Participants
The participants were individuals enrolled in either an MBA or Admin-istrative Science (M.A.) graduate program n117. The participants av-eraged 32.6 years of age and 9.4 years of full time employment experience.
2.2. Materials and procedure
the second oer received by participants in other conditions. The participants were presented with either gain or loss versions of the scenario and completed the study at the beginning of a class period. Thus, we employed a 3 (source: same, dierent, control)2 (domain: gain, loss) factorial design.
2.3. Measures
Participants responded to 4, 5-point Likert scaled items indicating their likelihood of accepting the oer, satisfaction with the oer, anticipated happiness if the oer was accepted, and anticipated regret if the oer was accepted. The likelihood of accepting and satisfaction items were averaged to form an oer appraisal scale (a0:81), and the anticipated happiness (re-verse scored) and anticipated regret items were averaged to form a regret scale (a0:84). Higher ratings indicated greater levels of the construct.
3. Results
As we predicted, there was a signi®cant, negative correlation between the oer appraisal and anticipated regret measures (r ÿ0:71), some of which may be attributed to common method variance. The results of a factor analysis on the scale items, available from the ®rst author, showed that the items tended to load on a single factor. Nevertheless, regret theory (Loomes & Sugden, 1982) makes a distinction between the emotional responses that accompany choice and the choice itself, and our measures were intended to re¯ect this theoretical distinction. Thus, we conducted separate analyses of variance (ANOVA) on the oer appraisal and anticipated regret measures. We also calculated the eect size (eta squared,g2) associated with each of the model terms. Descriptive statistics for all measures are presented in Table 1. There was a signi®cant eect for domain on appraisal of the oer,
F 1;111 43:11;p<0:001;g2 0:280. Gains were appraised more highly (M3:02;S:D:1:06) than losses (M 1:96;S:D:0:68). The eect for domain functions as a manipulation check, showing that the gain-domain scenario was more positively received than the loss-domain scenario. The main eect for source on appraisal of the oer was not signi®cant,
hoc tests to explore the nature of the interaction. As can be seen in Table 1, appraisals of gains became more negative when a second oer was received from either source, but appraisals of loss became more positive with the receipt of a second oer. However, there were no signi®cant dierences across source conditions within each domain. Testing for dierences across domain showed that gains were appraised more highly than losses when there was no inaction and when a second oer was received from the same source as the ®rst. However, when the second oer came from a dierent source, there was no dierence in appraisals of gains and losses.
There was a signi®cant eect from domain on anticipated regret,
F 1;111 52:61;p<0:001;g2 0:360. Again, the eect demonstrates that our manipulation was successful, as gains were associated with less antici-pated regret than losses (M2:66;S:D:0:92 vs. M3:85;S:D:0:74). The main eect for source on regret was not signi®cant, F 2;111 0:77;
p0:466;g2 0:014. However, the interaction among source and domain approached conventional levels of signi®cance, F 2;111 2:45;p0:091;
Table 1
Means and standard deviations for dependent measuresA
Condition n Appraisal Regret
Gain/No inaction 17
M 3:32a 2:29a
S.D. 1.09 0.73
Gain/Inaction ± same source 21
M 2:91ac 2:81a
S.D. 1.16 0.97
Gain/Inaction ± dierent source 21
M 2:88ac 2:81a
S.D. 0.93 0.97
Loss/No inaction 19
M 1:71b 3.97b
S.D. 0.35 0.66
Loss/Inaction ± same source 20
M 1:93b 3
:93b
S.D. 0.67 0.80
Loss/Inaction ± dierent source 19
M 2:24c 3.67b
S.D. 1.04 0.77
A
g2 0:042. Again, given our lack of statistical power and the size of the interaction eect, we conducted Tukey-HSD post hoc tests to explore the interaction. Although regret increased slightly for gains when there was a second oer from either source and decreased slightly for losses when the second oer came from a dierent source (see Table 1), in fact, there were no signi®cant dierences across source within each domain. In addition, losses were associated with more regret than gains for every source condition.
4. Discussion
The purpose of this study was to examine inaction inertia in the domain of losses as well as gains and to examine the eect of oer source on the inaction inertia eect. We found that the eect of prior inaction may operate dier-ently in the domain of losses than in the domain of gains. As would be ex-pected, the likelihood of accepting a loss was low regardless of whether an initial opportunity was foregone or whether the source of the second oer was the same or dierent. However, the trends for accepting gains and losses were divergent. Though we observed a trend consistent with the inaction inertia eect for gains regardless of whether the source of the second oer was the same or dierent, we observed an opposite trend for losses, such that participants were slightly more likely to accept a second oer, particularly when it can from a dierent source.
Although we hypothesized that decision makers may be less likely to use the ®rst oer as a reference point when the second oer came from a dierent source, our results were only consistent with that explanation in the domain of losses; the inaction inertia eect was not in¯uenced by oer source in the domain of gains. It is possible that the eect in the domain of losses arises from the social information that a second source provides. Speci®cally, a less attractive oer from a second source may provide converging evidence about market price trends. Thus, when the oers are getting worse and seem un-likely to get better, individuals may ``cut their losses'' and be more un-likely to take action. As this is the ®rst study to examine the eects of prior inaction in the domain of losses, more research is needed to determine what factors in¯uence decisions to act on losses.
oer. This suggests that as anticipated regret increases, inaction inertia is also likely to occur. Tykocinski and Pittman (1998) note that it is not clear whether inaction inertia is a response to avoid anticipated regret or to escape present feelings of regret. Given that our study speci®cally measured antici-pated regret, it appears that at least some of the inaction inertia eect is due to the avoidance of projected emotional responses. More research is neces-sary, however, to determine the role of regret avoidance and escape responses in producing inaction inertia.
Although the inaction inertia eect is an interesting decision phenomenon, the practical importance of the eect is unclear. Limits to the eect have already been identi®ed: Tykocinski et al. (1995) and Tykocinski and Pittman (1998) only found the eect when the dierence between the prior and present oers was large. The present study suggests other factors may also limit the eect. We found a relatively weak inaction inertia eect for a business vi-gnette with experienced business decision makers as participants. It may well be the case that experienced decision makers consider more information, like the opportunity for future gains, and are therefore less likely to show inaction inertia (cf., Smith & Kida, 1991). It is important to remember that this and previous studies of inaction inertia have all been laboratory investigations employing simple vignettes or simulations. Outside of the laboratory, deci-sions to act are made in a considerably richer context, and many factors will likely in¯uence whether or not action is taken. Our study suggests that social information may be one such factor. Clearly, however, future research should attempt to uncover other predictors of inaction.
Acknowledgements
We are grateful for Amie Skattebo's assistance with data collection and for the comments of an anonymous reviewer.
Appendix A. Business vignettes
A.1. Inaction scenario
business has an estimated worth of $600,000 [$1,400,000]. Although this sounded like an attractive oer, you could not get the necessary legal work in order by October 15th. Later, the big corporation [a company in a similar line of business operating in a nearby city] approached you again and indi-cated that, although you missed the deadline, they would oer you $850,000 for your small business. How likely would you be to accept their oer?
A.2. Control scenario
Imagine you are an independent contractor with your own small business. You have been approached by a big corporation about buying out your small business. The big corporation said that, if you signed their contract by the 15th of October, they would buy you out for $850,000. Your small business has an estimated worth of $600,000 [$1,400,000]. How likely would you be to accept their oer?
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