Behavioral Consequences of Commission and Omission Errors in Innovation and Strategic Management

Abstract

This cumulative dissertation examines how commission and omission errors shape subsequent decisions at the individual and firm level. It comprises three studies.<br><br>The first study draws on risk-type preference-shift theory and extends it with individual and organizational boundary conditions to examine how distinct failure experiences shape managers' willingness to persist with underperforming innovation projects. It conceptualizes failure as a dichotomy, distinguishing commission errors (flops) from omission errors (missed opportunities). Findings from two experiments indicate that a recent commission error reduces the likelihood of persisting, while an omission error increases it. At the individual level, action-oriented decision-makers show a larger reduction in persistence after experiencing a commission error. Rational thinkers do not differ in susceptibility to past failures; instead, they weigh specific attributes of the ongoing project more heavily when deciding whether to persist. At the organizational level, this effect depends on an organization's strategic orientation: an exploratory orientation weakens the negative impact of commission errors and strengthens the positive impact of omission errors, whereas an exploitative orientation amplifies the negative effects of commission errors.<br><br>The second study investigates how a prior decision failure affects escalation of commitment in subsequent new product development. Across two experimental studies with innovation managers, it draws on regret regulation theory and regulatory focus theory to show that anticipated keep regret, arising from continuing a failing project, and anticipated drop regret, stemming from terminating a promising project too soon, conditionally mediate the effect of failure type on escalation, depending on decision-makers' regulatory focus. Commission errors increase anticipated keep regret, reducing escalation among decision-makers low in prevention focus, whereas omission errors heighten anticipated drop regret, increasing escalation among those high in promotion focus.<br><br>The third study moves to the firm level. Competitive bidding in acquisitions involves multiple firms pursuing the same target, with some not securing it while a competing bidder completes the deal. The study conceptualizes such outcomes as missed acquisitions and examines how they shape subsequent acquisition behavior. Using 430 competitive acquisition announcements, it finds that firms that miss out engage in greater subsequent acquisition activity than firms that complete the deal, even after accounting for the financial resources preserved by not completing it. Stock market reactions condition this relationship: more favorable reactions attenuate the increase. These findings show that unrealized deals in competitive bidding settings shape bidders' subsequent behavior, and that the strategic consequences of goal non-attainment depend on public evaluation.<br><br>The three studies show that the type of a prior failure shapes subsequent decisions, and that decision-makers' traits, the organization's strategic orientation, and external evaluation determine how strongly.