Flops and Missed Opportunities: The Differential Effect of Distinct Failure Types on Persistence With Underperforming Innovation Projects

ABSTRACT Academic Abstract Without recognizing how past failures bias subsequent choices, managers risk decisions that waste resources or prematurely abandon promising opportunities. This 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. We conceptualize failure as a dichotomy, distinguishing commission errors (flops) from omission errors (missed opportunities). Our findings from two studies 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. Furthermore, 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, we observe that this effect depends on an organization's strategic orientation, that is, an exploratory orientation weakens (strengthens) the negative (positive) impact of commission (omission) errors. In contrast, an exploitative orientation amplifies the negative effects of commission errors. Together, these findings advance risk‐type preference‐shift theory and provide managers with clear guidance on when prior failures will lead them to persist with or abandon innovation projects. Managerial Abstract Decisions about whether to continue funding an underperforming innovation project are influenced by the most recent failure. After a flop, persistence decreases; after a missed opportunity, persistence increases. Action‐oriented decision‐makers emphasize the decline following a flop. State‐oriented decision‐makers are largely unaffected by a prior flop. Rational thinkers do not differ in their reactions to past failures but place greater emphasis on current project attributes, particularly proximity to completion and innovativeness. An exploration orientation reduces reactions to flops and boosts persistence after missed opportunities. An exploitation orientation increases the tendency to exit after flops. We recommend that companies and their managers keep a failure log that distinguishes between flops and missed opportunities; conduct structured postlaunch and postmortem reviews to classify failure types; seek neutral second opinions when previous failures might bias judgments; use reframing prompts to avoid anchoring on past outcomes; assemble review panels that include action‐ and state‐oriented managers and involve rational thinkers for projects that are near completion or highly innovative; in exploratory settings, verify whether continued investment aligns with strategy rather than serving as a fallback for earlier inaction; in exploitative settings, implement delayed second‐look procedures to prevent premature termination of projects with hidden potential.