The effect of mood and information sequence on third party evaluation of escalating capital investment projects

Third party evaluation of capital investment projects has been proposed as an effective means of controlling escalation of commitment. Prior research shows that such effectiveness can be limited by cognitive bias or task-related affective reactions but has not examined the influence of moods, known to impact how people process information, on third party evaluation of escalating capital investment. We argue that incidental moods (caused by factors unrelated to the decision context) can affect third party consultants’ evaluation of capital investment projects by influencing: (1) the consultants’ effort in processing project information; and (2) the consultants’ susceptibility to arrive at different decisions when presented with the same project information in different sequences. We conducted an experiment to test our propositions in an escalation of commitment context. We find that consultants in a negative mood spend more effort processing project information during the decision task than those in a positive mood. We also observe an interaction between mood and information presentation sequence, such that consultants in a positive mood are more likely to recommend project continuation when a project’s narrative information is viewed after numerical information rather than the reverse. In contrast, we observe no differences in project continuation recommendations for consultants in a negative mood irrespective of sequence. These results suggest that moods can influence the effectiveness of consultants as a control mechanism to prevent project escalation, and that organizations wishing to adopt a more conservative approach to preventing escalation of commitment should design project reports to present numerical information after narrative information.