Escalation of commitment [the
“sunk cost fallacy”]
refers to a human behavior pattern in which an individual or group—when faced
with increasingly negative outcomes from some decision, action, or
investment—continues the same behavior rather than alter course. They maintain
actions that are irrational, but align with previous decisions and actions.
Economists and behavioral scientists use a related term, sunk cost fallacy, to describe the justification of increased investment of money, time, lives, etc. in a decision, based on the cumulative prior investment ("sunk costs"); despite new evidence suggesting that the cost, beginning immediately, of continuing the decision outweighs the expected benefit. In the context of military conflicts, sunk costs in terms of money spent and lives lost are often used to justify continued involvement.
In sociology, irrational escalation of commitment or commitment bias describe similar behaviours; and the phenomenon and the sentiment underlying it are reflected in such proverbial images as "Throwing good money after bad" or "In for a penny, in for a pound".
Escalation of commitment was first described by Barry M. Staw in his 1976 paper, "Knee deep in the big muddy: A study of escalating commitment to a chosen course of action".
Researchers, inspired by the work of Staw, conducted studies that tested factors, situations and causes of escalation of commitment. The research introduced other analyses of situations and how people approach problems and make decisions. Some of the earliest work stemmed from events in which this phenomenon had an effect and help explain the phenomenon.
Researchers
define escalation of commitment
Over the past few decades, researchers have followed and analyzed many examples of the escalation of commitment to a situation. The heightened situations are explained in three elements. Firstly, a situation has a costly amount of resources such as time, money and people invested in the project. Next, past behavior leads up to an apex in time where the project has not met expectations or could in a cautious state of decline. Lastly, these problems all force a decision-maker to make choices that include the options of continuing to pursue a project until completion by adding additional costs, or canceling the project altogether.
Researchers have also developed an argument regarding how escalation of commitment is observed in two different categories. Many researchers believe that the need to escalate resources is linked to expectancy theory. "According to such a viewpoint, decision makers assess the probability that additional resource allocations will lead to goal attainment, as well as the value of goal attainment (i.e., rewards minus costs), and thereby generate a subjective expected utility associated with the decision to allocate additional resources." The next phase of the escalation process is self-justification and rationalizing if the decision the leader made used resources well, if the resources being used were used to make positive change, and assuring themselves that the decision they chose was right. Leaders must balance costs and benefits of any problem to produce a final decision. What matters most often in assuring the leader that they made the right choice regardless of the final outcome is if their decision is what others believed in.
Research conducted on the topic has been taken from many other forms and theories of psychology. Many believe that what researchers have done thus far to explain this behavior is best analyzed and tested through situational development and resource allocation.
Vietnam
War
Escalation of commitment can many times cause behavior change by means of locking into resources. One of the first examples of escalation of commitment was described by George Ball, who wrote to President Lyndon Johnson to explain to him the predictions of the war outcome:
Self-justification
theory
Self-justification thought process is a part of commitment decisions of leaders and managers of a group and can therefore cause a rise in commitment levels. This attitude provides "one explanation for why people escalate commitment to their past investments." Managers make decisions that reflect previous behavior. Managers tend to recall and follow information that is aligned to their behavior to create consistency for their current and future decisions. If a group member or outside party recognizes inconsistent decision making, this can alter the leadership role of the manager. Managers have external influence from society, peers, and authority, which can significantly alter a manager's perception on what factors realistically matter when making decisions.
Prospect
theory
Prospect theory helps to describe the natural reactions and processes involved in making a decision in a risk-taking situation. Prospect theory makes the argument for how levels of wealth, whether that is people, money, or time, affect how a decision is made. Researchers were particularly interested in how one perceives a situation based on costs and benefits. The framing to how the problem is introduced is crucial for understanding and thinking of the probability that the situation will either work in favor or against you and how to prepare for those changes. "Whyte (1986) argued that prospect theory provides the psychological mechanism by which to explain escalating commitment to a failing course of action without the need to invoke self-justification processes. (Fiegenbaum & Thomas, 1988: 99)" Prospect theorists believe that one's use of this process is when there is a negative downfall in the stakes that will affect the outcome of the project. To ensure they will not fail, the individual may add more resources to assure them that they will succeed. Though this theory seems realistic, researchers "Davis and Bobko (1986) found no effect of personal responsibility on continued commitment to the previous course of action in the positive frame condition." Which means that escalation of commitment will be lower in the higher responsibility situation.
Attribution
theory
The attribution theory, originating from Fritz Heider, "attempts to find causal explanations for events and human behaviors." This theory approaches two methods of inquiry including locus of causality and stability. Locus of causality reflects on internal haracteristics of an individual, such as intelligence levels and attention seeking, with the relationship of the external space such as weather forecasts and task difficulty. Aspects of control become a significant factor in how a manager justifies a decision made. Managers will use the relationship between internal and external factors to describe why they made a decision to a single point of view. Managers may justify their actions by explaining that this was out of their personal control of the event, or they could believe that the decision could not be controlled by anyone else. Research suggests that "the type of attribution made by an employee across these dimensions is likely to impact an employee's tendency to engage in the negative emotional activity referred to as escalation of commitment."
Social
identity theory
Identity is a large part of how we move through the world. Private thoughts and opinions as well as the effect of others create the social identity theory. People make connections between their use of groups and their own view of themselves, which researchers have discovered motivates people to keep their social status and to defend it whenever it is endangered.
Theoretical models
Temporal
model of escalation
Groups engage in temporal comparisons, which means that you compare actions and behaviors at "different points in time." This is a form of social identity scenario. This type of comparison can be made when a decision seems unproductive and forces team members to consider any threat to the group.
Aggregate
model
"The aggregate model's emphasis is upon the accumulation and balance of forces rather than the ordering of effects over time." The model is general and can provide an ideal view as to how. The effects whether positive or negative are defined by micro and macro forces. This model goes by situation rather than what researchers have defined as the norm. There is no process to follow, which makes it very useful for researchers because they can understand a situation more clearly as well as see the bigger picture of the situation.
Economists and behavioral scientists use a related term, sunk cost fallacy, to describe the justification of increased investment of money, time, lives, etc. in a decision, based on the cumulative prior investment ("sunk costs"); despite new evidence suggesting that the cost, beginning immediately, of continuing the decision outweighs the expected benefit. In the context of military conflicts, sunk costs in terms of money spent and lives lost are often used to justify continued involvement.
In sociology, irrational escalation of commitment or commitment bias describe similar behaviours; and the phenomenon and the sentiment underlying it are reflected in such proverbial images as "Throwing good money after bad" or "In for a penny, in for a pound".
Early Use
Escalation of commitment was first described by Barry M. Staw in his 1976 paper, "Knee deep in the big muddy: A study of escalating commitment to a chosen course of action".
Researchers, inspired by the work of Staw, conducted studies that tested factors, situations and causes of escalation of commitment. The research introduced other analyses of situations and how people approach problems and make decisions. Some of the earliest work stemmed from events in which this phenomenon had an effect and help explain the phenomenon.
Researchers
define escalation of commitment
Over the past few decades, researchers have followed and analyzed many examples of the escalation of commitment to a situation. The heightened situations are explained in three elements. Firstly, a situation has a costly amount of resources such as time, money and people invested in the project. Next, past behavior leads up to an apex in time where the project has not met expectations or could in a cautious state of decline. Lastly, these problems all force a decision-maker to make choices that include the options of continuing to pursue a project until completion by adding additional costs, or canceling the project altogether.
Researchers have also developed an argument regarding how escalation of commitment is observed in two different categories. Many researchers believe that the need to escalate resources is linked to expectancy theory. "According to such a viewpoint, decision makers assess the probability that additional resource allocations will lead to goal attainment, as well as the value of goal attainment (i.e., rewards minus costs), and thereby generate a subjective expected utility associated with the decision to allocate additional resources." The next phase of the escalation process is self-justification and rationalizing if the decision the leader made used resources well, if the resources being used were used to make positive change, and assuring themselves that the decision they chose was right. Leaders must balance costs and benefits of any problem to produce a final decision. What matters most often in assuring the leader that they made the right choice regardless of the final outcome is if their decision is what others believed in.
Research conducted on the topic has been taken from many other forms and theories of psychology. Many believe that what researchers have done thus far to explain this behavior is best analyzed and tested through situational development and resource allocation.
Vietnam
War
Escalation of commitment can many times cause behavior change by means of locking into resources. One of the first examples of escalation of commitment was described by George Ball, who wrote to President Lyndon Johnson to explain to him the predictions of the war outcome:
The decision you face now is
crucial. Once large numbers of U.S. troops are committed to direct combat, they
will begin to take heavy casualties in a war they are ill equipped to fight in
a non-cooperative if not downright hostile countryside. Once we suffer large
casualties, we will have started a well-nigh irreversible process. Our
involvement will be so great that we cannot—without national humiliation—stop
short of achieving our complete objectives. Of the two possibilities, I think
humiliation would be more likely than the achievement of our objectives—even
after we have paid terrible costs.
Theories
Self-justification
theory
Self-justification thought process is a part of commitment decisions of leaders and managers of a group and can therefore cause a rise in commitment levels. This attitude provides "one explanation for why people escalate commitment to their past investments." Managers make decisions that reflect previous behavior. Managers tend to recall and follow information that is aligned to their behavior to create consistency for their current and future decisions. If a group member or outside party recognizes inconsistent decision making, this can alter the leadership role of the manager. Managers have external influence from society, peers, and authority, which can significantly alter a manager's perception on what factors realistically matter when making decisions.
Prospect
theory
Prospect theory helps to describe the natural reactions and processes involved in making a decision in a risk-taking situation. Prospect theory makes the argument for how levels of wealth, whether that is people, money, or time, affect how a decision is made. Researchers were particularly interested in how one perceives a situation based on costs and benefits. The framing to how the problem is introduced is crucial for understanding and thinking of the probability that the situation will either work in favor or against you and how to prepare for those changes. "Whyte (1986) argued that prospect theory provides the psychological mechanism by which to explain escalating commitment to a failing course of action without the need to invoke self-justification processes. (Fiegenbaum & Thomas, 1988: 99)" Prospect theorists believe that one's use of this process is when there is a negative downfall in the stakes that will affect the outcome of the project. To ensure they will not fail, the individual may add more resources to assure them that they will succeed. Though this theory seems realistic, researchers "Davis and Bobko (1986) found no effect of personal responsibility on continued commitment to the previous course of action in the positive frame condition." Which means that escalation of commitment will be lower in the higher responsibility situation.
Attribution
theory
The attribution theory, originating from Fritz Heider, "attempts to find causal explanations for events and human behaviors." This theory approaches two methods of inquiry including locus of causality and stability. Locus of causality reflects on internal haracteristics of an individual, such as intelligence levels and attention seeking, with the relationship of the external space such as weather forecasts and task difficulty. Aspects of control become a significant factor in how a manager justifies a decision made. Managers will use the relationship between internal and external factors to describe why they made a decision to a single point of view. Managers may justify their actions by explaining that this was out of their personal control of the event, or they could believe that the decision could not be controlled by anyone else. Research suggests that "the type of attribution made by an employee across these dimensions is likely to impact an employee's tendency to engage in the negative emotional activity referred to as escalation of commitment."
Social
identity theory
Identity is a large part of how we move through the world. Private thoughts and opinions as well as the effect of others create the social identity theory. People make connections between their use of groups and their own view of themselves, which researchers have discovered motivates people to keep their social status and to defend it whenever it is endangered.
Theoretical models
Temporal
model of escalation
Groups engage in temporal comparisons, which means that you compare actions and behaviors at "different points in time." This is a form of social identity scenario. This type of comparison can be made when a decision seems unproductive and forces team members to consider any threat to the group.
Aggregate
model
"The aggregate model's emphasis is upon the accumulation and balance of forces rather than the ordering of effects over time." The model is general and can provide an ideal view as to how. The effects whether positive or negative are defined by micro and macro forces. This model goes by situation rather than what researchers have defined as the norm. There is no process to follow, which makes it very useful for researchers because they can understand a situation more clearly as well as see the bigger picture of the situation.
Examples
- The dollar auction is a thought exercise
demonstrating the concept.
- After a heated and aggressive bidding war, Robert
Campeau ended up buying Bloomingdale's for an estimated $600 million more
than it was worth. The Wall Street Journal noted that "we're
not dealing in price anymore but egos." Campeau was forced to declare
bankruptcy soon afterwards.
- Certain fraud schemes exploit this behaviour,
such as the Nigerian 419 Scam, where victims continue to spend money for
alleged business deals, although the fraudulent character of the deal
appears obvious to uninvolved persons.
- The Big Dig in
- Shoreham Nuclear Power Plant
- Taurus IT Project
- AIG Government Assistance
- 30–40% of software projects experience
escalation of commitment due to their complexity and uncertainty.
Intangibility makes determining the current status of projects especially
difficult.
- 6 years and $1 billion spent by the U.S. Air
Force on a dysfunctional combat support system
- Sony's continued participation in electronics
after $8.5 billion in losses over 10 years
- Congress and advocacy group support and
investment in the 21st Century Community Learning Center, which has been
found to fail to meet its goals
- Continued funding for the Drug Abuse Resistance Education Program, which doesn't lead to a meaningful decrease in drug use
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