Escalation of commitment

Escalation of commitment

• Escalation of commitment** is a pattern of decision-making in which individuals or groups continue to invest in a chosen course of action despite mounting evidence that the decision is wrong or that the project is unlikely to succeed. The phenomenon has been studied in organizational behavior, economics, psychology, and sociology. It commonly arises after substantial resources—such as time, money, effort, or reputation—have been invested, and is often described in the research literature as "irrational" because it violates standard cost–benefit reasoning and persists even when superior alternatives are available.

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 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."

Vietnam War Escalation of commitment can many times cause behavior change by means of locking into resources. In 1965, U.S. diplomat George Ball wrote to President Lyndon Johnson explaining that the South Vietnamese were losing the war, facing the United States with a decision between limiting U.S. liabilities by finding a way out at minimal long-term costs or, alternatively, accepting an open-ended commitment of U.S. forces:}}

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.

Theoretical models #### Temporal model of escalation Groups engage in temporal comparisons, which means that you compare actions and behaviors at "different points in time."

Project Project determinants are those that refer to the original commitments and decisions made at a project's beginning. This includes general project characteristics and initial financial costs. Among them, decision risk, opportunity cost information, and information acquisition have been found to have negative relationships with escalation of commitment. Decision uncertainty, positive performance trend information, and expressed preference for initial decision have been found to have positive relationships. It's more likely that risks will be taken at these points than in a project closer to a visible midpoint.

Social Social determinants are those that refer to the expectations and influence of other individuals or groups on project actions. Included in these, group identity or cohesive strength has been found to have the most influence on escalation of commitment while public evaluation of decision and resistance to decision from others has little significance in relation. Escalation of commitment can then occur in any of these situations. External groups can play an even larger part in escalating commitment if their power is greater than that of the group taking action and they use that power to directly lead and influence. Members can eliminate some of the escalation potential if they come to a better decision earlier on in the process and avoid the need to change course dramatically. Yet they can also hold onto a larger base of support for their initial actions to the point where escalation potential is increased. In this case, groupthink assists in keeping with the original decision and pressures towards conformity rather than dividing the group with other options. Also, a group whose members are not cohesive can have decreased escalation potential due to conflicts and varying levels of inclusion in the process. Business reputation, customer and share loss, and financial loss become risks.

Examples * SoftBank Group's spending billions in an investment rescue package for troubled company WeWork during 2019. * The [[dollar-auction]] is a thought exercise demonstrating the concept. After a heated and aggressive bidding war, property developer Robert Campeau ended up buying Bloomingdale's for an estimated $600 million more than it was worth. In 1992, The Wall Street Journal* wrote regarding the bidding war that "we're not dealing in price anymore but egos." Campeau was forced to declare bankruptcy soon afterwards, in what was then the costliest personal bankruptcy in the US. * 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 people. * The Big Dig, a costly construction project in Boston * Continued funding for the Drug Abuse Resistance Education Program for school children, which research showed doesn't lead to a meaningful decrease in drug use Until it was fully opened in November 2020, politicians and economists had raised doubts that the airport could ever be opened, while at the same time the project had been described as "too expensive to fail". * The Concorde project * Construction of the Channel tunnel Construction of the American Dream Meadowlands complex in New Jersey, a project started in 2003 under the name Xanadu*, plagued by financial and legal hurdles and numerous construction delays

See also * * * * * * * * * * * * *

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