Which matters more? Group fear versus hope in entrepreneurial escalation of commitment

• Published date: 01 November 2019
• Author: Sigal G. Barsade,Vangelis Souitaris,Tori Y. Huang
• Date: 01 November 2019
• DOI: http://doi.org/10.1002/smj.3051

RESEARCH ARTICLE

Which matters more? Group fear versus hope in

entrepreneurial escalation of commitment

Tori Y. Huang

1

| Vangelis Souitaris

1,2

| Sigal G. Barsade

3

1

Cass Business School, City University of London, London, UK

2

University of St.Gallen, St. Gallen, Switzerland

3

The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania

Correspondence

Vangelis Souitaris, Cass Business School,

City University of London, 106 Bunhill

Row, London EC1Y 8TZ, UK.

Email: v.souitaris@city.ac.uk

Funding information

Wharton Center for Leadership and Change

Management; Robert Katz Fund for

Emotion Research in Organizations at the

Wharton School; Cass Business School

Abstract

Research Summary:We examine the influence of two

conflicting emotions—group fear and group hope—in

entrepreneurial team decision-making. We are interested in

which emotion will be more strongly related to whether

entrepreneurial teams escalate their commitment to a cur-

rently failing venture versus terminating that venture. Using

a longitudinal start-up simulation and based on data from

66 teams across 569 decision-making rounds, we find that

group “hope trumps fear.”That is, the relationship between

group hope and escalating commitment to a failing venture

is stronger than the relationship between group fear and ter-

minating that venture. We predict and find that team

engagement mediates these relationships. We find partial

support for a predicted moderation effect of group friend-

ship strength. Theoretical implications are discussed.

Managerial Summary:Emotions are a critical but often

unacknowledged part of entrepreneurial decision-making.

We tested whether group fear or group hope will most

strongly influence teams' decisions to escalate their commit-

ment, versus terminating a currently failing venture. Using a

longitudinal entrepreneurial simulation, based on data from

66 teams across 569 decision-making rounds, we find that

“hope trumps fear.”That is, the relationship between group

hope and escalating commitment to a failing venture is stron-

ger than the relationship between group fear and terminating

Received: 7 February 2017 Revised: 2 April 2019 Accepted: 30 April 2019 Published on: 24 June 2019

DOI: 10.1002/smj.3051

1852 © 2019 John Wiley & Sons, Ltd. Strat Mgmt J. 2019;40:1852–1881.wileyonlinelibrary.com/journal/smj

that venture. Group engagement versus disengagement helps

to explain this finding. Our results indicate the importance of

entrepreneurs understanding and managing their team emo-

tions for the best decision-making. It also helps explain the

continued engagement of entrepreneurial teams who even,

when fearful, have hope.

KEYWORDS

entrepreneurship, escalation of commitment, emotion/affect, fear, hope,

team decision-making, venture termination

1|INTRODUCTION

Entrepreneurship is an inherently uncertain process (Knight, 1921; Koudstaal, Sloof, & van Praag,

2016; McMullen & Shepherd, 2006). A quarter of new entrepreneurial ventures in the United States

survive no longer than 1 year after founding, 44% fail by the end of the third year, and 55% fail by

the end of the fifth year (Shane, 2008). In this context, how do entrepreneurial teams react when their

financial situations turn for the worse? Do they terminate a venture that is losing money to cut their

financial losses, or do they continue despite increasing financial risk? To understand this decision,

we employ the theory of escalation of commitment to a failing course of action (Brockner, 1992;

Sleesman, Conlon, McNamara, & Miles, 2012; Staw, 1981, 2005) because venture termination deci-

sions typically occur under conditions of increasing loss. The dynamic nature of escalation theory is

also useful as founding teams typically face the decision to escalate their commitment to a failing

venture multiple times before deciding to terminate the venture (Shepherd, Patzelt, Williams, &

Warnecke, 2014).

We are specifically interested in the emotional dynamics involved in teams' decision to escalate

their commitment rather than terminate a currently failing venture. The growing field of affect in

entrepreneurship has shown that emotions are important in entrepreneurial decision-making (Baron,

2008; Cardon, Foo, Shepherd, & Wiklund, 2012; Foo, 2011). Given the robust evidence that emo-

tions are strongly felt as a consequence of venture termination (Shepherd, 2003; Shepherd & Cardon,

2009; Ucbasaran, Shepherd, Lockett, & Lyon, 2013), we predict that emotions are a critical anteced-

ent to the decision to escalate commitment rather than terminate a currently failing venture.

We focus on the influence of group fear and group hope because, compared to other emotions,

fear and hope are more associated with uncertainty (Chew & Ho, 1994; Loewenstein, Weber, Hsee, &

Welch, 2001; Lopes, 1987), which is inherent to the decision to escalate commitment to a venture.

We compare a founding team's fear that a currently failing venture will ultimately increase financial

losses to their hope that the venture can be turned around, recover the losses, and ultimately make

money. We set the founding team as the unit of analysis because teams often establish and run new

ventures (Schjoedt, Monsen, Pearson, Barnett, & Chrisman, 2013) and make many major escalation

decisions (Staw, 2005). With few notable exceptions (Bazerman, Giuliano, & Appelman, 1984;

Kameda & Sugimori, 1993; Moon et al., 2003; Whyte, 1993), current research has focused on

individual-level rather than group-level drivers of escalation of commitment.

Our key question involves an understanding of the concurrent effects of group fear and hope.

Research has shown that contrasting emotions can be felt simultaneously (Larsen & McGraw, 2011;

HUANG ET AL.1853