Escalation of commitment
Encyclopedia
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". More recently the term sunk cost fallacy has been used to describe the phenomenon where people justify increased investment
in a decision, based on the cumulative prior investment, despite new evidence suggesting that the cost, starting today, of continuing the decision outweighs the expected benefit. Such investment may include money, time, or — in the case of military strategy
— human lives. The phenomenon and the sentiment underlying it are reflected in such proverbial images as Throwing good money after bad and In for a dime, in for a dollar (or In for a penny, in for a pound).
The term is also used to describe poor decision-making in business
, government
, information systems
in general, software project management
in particular, politics
, and gambling
. The term has been used to describe the United States commitment to military conflicts including Vietnam in the 1960s - 1970s and in Iraq in the 2000s, where dollars spent and lives lost justify continued involvement.
Alternatively, irrational escalation
(sometimes referred to as irrational escalation of commitment or commitment bias) is a term frequently used in psychology
, philosophy
, economics
, and game theory
to refer to a situation in which people can make irrational decisions based upon rational decisions in the past or to justify actions already taken. Examples are frequently seen when parties engage in a bidding war; the bidders can end up paying much more than the object is worth to justify the initial expenses associated with bidding (such as research), as well as part of a competitive instinct.
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
in a decision, based on the cumulative prior investment, despite new evidence suggesting that the cost, starting today, of continuing the decision outweighs the expected benefit. Such investment may include money, time, or — in the case of military strategy
Military strategy
Military strategy is a set of ideas implemented by military organizations to pursue desired strategic goals. Derived from the Greek strategos, strategy when it appeared in use during the 18th century, was seen in its narrow sense as the "art of the general", 'the art of arrangement' of troops...
— human lives. The phenomenon and the sentiment underlying it are reflected in such proverbial images as Throwing good money after bad and In for a dime, in for a dollar (or In for a penny, in for a pound).
The term is also used to describe poor decision-making in business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
, government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
, information systems
Information systems
Information Systems is an academic/professional discipline bridging the business field and the well-defined computer science field that is evolving toward a new scientific area of study...
in general, software project management
Project management
Project management is the discipline of planning, organizing, securing, and managing resources to achieve specific goals. A project is a temporary endeavor with a defined beginning and end , undertaken to meet unique goals and objectives, typically to bring about beneficial change or added value...
in particular, politics
Politics
Politics is a process by which groups of people make collective decisions. The term is generally applied to the art or science of running governmental or state affairs, including behavior within civil governments, but also applies to institutions, fields, and special interest groups such as the...
, and gambling
Gambling
Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods...
. The term has been used to describe the United States commitment to military conflicts including Vietnam in the 1960s - 1970s and in Iraq in the 2000s, where dollars spent and lives lost justify continued involvement.
Alternatively, irrational escalation
Escalation
Escalation is the phenomenon of something getting more intense step by step, for example a quarrel, or, notably, a war between states possessing weapons of mass destruction. Compare to escalator, a device that lifts something to a higher level...
(sometimes referred to as irrational escalation of commitment or commitment bias) is a term frequently used in psychology
Psychology
Psychology is the study of the mind and behavior. Its immediate goal is to understand individuals and groups by both establishing general principles and researching specific cases. For many, the ultimate goal of psychology is to benefit society...
, philosophy
Philosophy
Philosophy is the study of general and fundamental problems, such as those connected with existence, knowledge, values, reason, mind, and language. Philosophy is distinguished from other ways of addressing such problems by its critical, generally systematic approach and its reliance on rational...
, economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, and game theory
Game theory
Game theory is a mathematical method for analyzing calculated circumstances, such as in games, where a person’s success is based upon the choices of others...
to refer to a situation in which people can make irrational decisions based upon rational decisions in the past or to justify actions already taken. Examples are frequently seen when parties engage in a bidding war; the bidders can end up paying much more than the object is worth to justify the initial expenses associated with bidding (such as research), as well as part of a competitive instinct.
Examples
- The dollar auctionDollar auctionThe dollar auction is a non-zero sum sequential game designed by economist Martin Shubik to illustrate a paradox brought about by traditional rational choice theory in which players with perfect information in the game are compelled to make an ultimately irrational decision based completely on a...
is a thought exercise demonstrating the concept. - After a heated and aggressive bidding war, Robert CampeauRobert CampeauRobert Campeau is a Canadian financier and real estate developer.-Early years:His formal education ended in grade eight, at the age of 14. He talked himself into jobs at Inco as a general labourer, carpenter and machinist. In 1949 he entered the residential end of the construction business...
ended up buying Bloomingdale'sBloomingdale'sBloomingdale's is an American department store owned by Macy's, Inc. .Bloomingdale's started in 1861 when brothers Joseph and Lyman G. Bloomingdale started selling hoop-skirts in their Ladies Notions' Shop on Manhattan's Lower East Side...
for an estimated 600 million dollars 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. - Often, when two competing brands are attempting to increase market share, they end up spending money without either increasing market share in a significant manner. This can be seen as a commercial application of the Red Queen hypothesisRed Queen's HypothesisThe Red Queen's Hypothesis, also referred to as Red Queen, Red Queen's race or Red Queen Effect, is an evolutionary hypothesis. The term is taken from the Red Queen's race in Lewis Carroll's Through the Looking-Glass...
. Another example was the competition in the 1970s between the McDonnell Douglas DC-10McDonnell Douglas DC-10The McDonnell Douglas DC-10 is a three-engine widebody jet airliner manufactured by McDonnell Douglas. The DC-10 has range for medium- to long-haul flights, capable of carrying a maximum 380 passengers. Its most distinguishing feature is the two turbofan engines mounted on underwing pylons and a...
and Lockheed L-1011Lockheed L-1011The Lockheed L-1011 TriStar, commonly referred to as the L-1011 or TriStar, is a medium-to-long range, widebody passenger trijet airliner. It was the third widebody airliner to enter commercial operations, following the Boeing 747 and the McDonnell Douglas DC-10. Between 1968 and 1984, Lockheed...
jetliners - two planes that were similar in size and architecture and therefore competed in the same niche of the market. In the end both products cannibalised each others sales and ultimately drove their manufacturers out of the commercial airliner business.
See also
- Progress trapProgress trapA progress trap is the condition human societies experience when, in pursuing progress through human ingenuity, they inadvertently introduce problems they do not have the resources or political will to solve, for fear of short-term losses in status, stability or quality of life...
- Sunk costSunk costIn economics and business decision-making, sunk costs are retrospective costs that have already been incurred and cannot be recovered. Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken...
- Zero-profit conditionZero-profit conditionIn economic competition theory, the zero-profit condition describes the condition that occurs when an industry or type of business has an extremely low cost of entry...
- Lock-in (decision-making)Lock-in (decision-making)Lock-in can be seen as the escalating commitment of decision-makers to an ineffective course of action. It concerns institutional lock-in as compared to technical lock-in of which the QWERTY keyboard is a famous example....
- List of cognitive biases