Escalation of Commitment

Definition

Escalation of commitment is a phenomenon where individuals or organizations continue to invest resources into a course of action despite evidence that it may not be the best decision. It is a barrier to effective decision-making as it can lead to the persistence of failing courses of action.

5 Must Know Facts For Your Next Test

1. Escalation of commitment is often driven by a desire to justify past decisions and investments, even when the current situation indicates a different course of action would be more beneficial.
2. Individuals and organizations may escalate commitment to avoid admitting they were wrong or to maintain their reputation, leading to further losses.
3. Escalation of commitment can occur in various contexts, such as personal finance, business decisions, and public policy, and can have significant negative consequences.
4. Cognitive biases, such as the sunk cost fallacy and confirmation bias, can contribute to escalation of commitment by distorting the decision-making process.
5. Effective strategies to mitigate escalation of commitment include regular review of decisions, seeking external perspectives, and establishing clear decision-making criteria.

Review Questions

• Explain how the sunk cost fallacy can contribute to escalation of commitment.
  • The sunk cost fallacy is a key driver of escalation of commitment. When individuals or organizations have already invested significant resources (time, money, effort) into a course of action, they may be reluctant to abandon it, even if continuing is not the best decision going forward. The desire to justify these past investments can lead to a persistence in the failing course of action, despite evidence that it is no longer the optimal choice. This sunk cost mentality blinds decision-makers to the objective merits of the current situation and causes them to escalate their commitment, hoping to recoup the initial investment.
• Describe how confirmation bias can exacerbate escalation of commitment.
  • Confirmation bias, the tendency to seek out and interpret information in a way that confirms one's existing beliefs or decisions, can also contribute to escalation of commitment. When individuals or organizations are faced with evidence that their initial course of action may not be the best, they may selectively focus on information that supports their existing decision, while ignoring or discounting contradictory evidence. This biased information processing reinforces their commitment to the failing course of action, making it increasingly difficult to objectively evaluate alternative options. The combination of sunk costs and confirmation bias can create a self-reinforcing cycle of escalation, where decision-makers become increasingly entrenched in their original decision, despite mounting evidence that a change in direction is warranted.
• Evaluate the potential long-term consequences of escalation of commitment in the context of organizational decision-making.
  • Escalation of commitment in organizational decision-making can have significant long-term consequences. When organizations persist in a failing course of action, they may continue to allocate valuable resources (financial, human, and operational) to a project or initiative that is unlikely to succeed. This can lead to the depletion of organizational resources, the opportunity cost of not pursuing more promising alternatives, and the potential for reputational damage if the failure becomes public. Additionally, escalation of commitment can create a culture of risk-aversion and resistance to change, as employees learn that admitting mistakes or changing course is frowned upon. This can stifle innovation and adaptability, making the organization less responsive to market shifts and competitive pressures. In the long run, the inability to make objective, evidence-based decisions and pivot when necessary can severely undermine an organization's overall performance and competitiveness.

Related terms

Sunk Cost Fallacy: The tendency to continue investing in a course of action because of the resources already invested, even if continuing is not the best decision going forward.

Confirmation Bias:

The tendency to seek out and interpret information in a way that confirms one's existing beliefs or decisions, rather than objectively evaluating all available information.

Loss Aversion: The tendency for people to strongly prefer avoiding losses to acquiring gains, which can lead to escalation of commitment to avoid acknowledging a past loss.