#86 Escalation of Commitment in Decision Making
In this post we will cover a particular type of bias when approaching decisions serially namely a tendency to escalate commitment to our initial decision. This is a common situation in many critical managerial decisions where they need to make a decision as a result of a previous decision rather than an isolated decision.
Inertia frequently leads us to continue on our previously selected course of action. The key to making intelligent decisions is to discriminate between situations in which persistence will pay off and those in which it will not. In deciding whether to persist or pursue a new course of action - the key decision involves the future costs and benefits of exiting (or pursuing a new course of action) versus the future costs and benefits of continuing with the existing course of action.
The consequence of escalation is the allocation of resources in a way that justifies previous commitment whether or not those initial commitments now appear valid.
Unilateral Escalation Paradigm
In the unilateral escalation paradigm the justifications for nonrational escalation lie within the individual. The mechanism underlying escalation is self justification. Once an individual makes an initial decision to embark on a course of action, negative feedback is dissonant with the initial decision. The typical response to the dissonance is to stay consistent by escalating commitment to the initial action in the belief that it will eventually lead to success. The tendency to escalate commitment is stronger after receiving negative feedback on the initial (or earlier) decision.
Groups are less likely than individuals to escalate commitment. However, groups that escalate tend to do so to a greater degree than individuals (in cases where group think exists).
Competitive Escalation Paradigm
In the competitive escalation paradigm competitive forces feed the escalatory process. The desire to "win" serves as added motivation for nonrational escalation. One strategy for identifying competitive traps is to try to consider the decision from the perspective of the other decision maker. If an auction looks just as attractive to other bidders as it does for you - you can accurately predict what will occur and stay out of the auction.
Why Does Escalation Occur?
The first step toward eliminating nonrational escalation from our decisions is to identify the psychological factors that feed it. The most common causes of escalations:
Perceptual bias: You notice information that supports your initial decision and ignore information that contradicts your initial decision. In order to overcome this bias we need to search vigilantly for disconfirming information
Judgmental bias: Any loss from our initial decision will systematically distort our judgment toward continuing the previously selected course of action. We tend to be risk seeking to negatively framed problems
Impression management: We seek to manage the impressions of others. We also do not want to admit failure and try to appear consistent to others. In order to overcome this bias a company can convey to all members of the organization that impression management at the expense of high quality decisions will not be tolerated.
Competitive irrationality: We see to "win" rather than seek one's own gain. Winning involves besting others in the competition - many situations may look like opportunities but prove to be traps when you have fully considered the likely actions of others
Summary
As a manager you should make a decision and implement it, but be open to dropping your commitment and shifting to another course of action if the first plan does not work out. This means constantly reassessing the rationality of future commitments and learning to identify failures early.
This post is a summary of a chapter from the book - Judgment in managerial decision making by Max Bazerman and Don Moore