Escalation of Commitment

When a decision maker discovers that a previously selected course of action is failing, she is faced with a dilemma: Should she pull out her remaining resources and invest in a more promising  alternative, or should she stick with her initial decision and hope that persistence will eventually pay off?  Management scholars have documented a tendency of decision makers to escalate commitment to previously selected courses of action when objective evidence suggests that staying the course is unwise.  In these situations, decision makers often feel they have invested too much to quit and make the errant decision to “stick to their guns”.

(Kelly & Milkman)

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Lecturer: Escalation of Commitment happens when the company’s in a bad shape, despite of the huge investment it’s already put in there, and the management reacts to the circumstances by putting more investment in hope that it’ll help the company to perform better.... It’s like a bad relationship.

Me: [laughing softly]

Lecturer: Yasmin, do you understand? Can you explain it to the class?

Me: Err, no. It’s okay.

Lecturer: No, please. Because it seems that you pick up my idea. Can you explain it to your friends?

Me: Well, it’s like when you’re in a relationship for so long, 5 years, and it doesn’t go well, but you think you’ve already put too much effort in it that you don’t want to end it.

Lecturer: And instead you get married, escalating your commitment, hoping that the problem will be solved by the escalated commitment. Exactly!

How could I pick the idea so easily? Obviously, because I’ve witnessed some of my friends do or did that to some extent. I just didn’t know there’s a term for it. And how do we know if we are in the circumstances?

Me: And how do we know if we are in the circumstances? That we shouldn’t put more investment?

Lecturer: That’s why people go to MBA, to answer that kind of question.

Isn’t making the right decision expensive?