Lynda St. Clair,Ph.D.
We all do it. We make a decision. We get some information that tells us we made a bad choice. But rather than cutting our losses, we ignore that information and continue to commit time and resources to that decision-throwing good money after bad.
This problem, referred to by researchers as “escalation of commitment to a failing course of action,” (or escalation of commitment, for short) has been studied for over 35 years, but a simple, straightforward solution continues to elude us.
Given all of this research, why are we still unable to recognize quickly that a project is headed toward failure and should be canceled sooner, rather than later? As with all instances of human fallibility, we can fail for three basic reasons:
- Because something is beyond our capacity;
- Because of ignorance-we do not completely understand how the world works; or
- Because of ineptitude-we have the knowledge, but we fail to apply it correctly (Gawande, 2010, p. 8).
Research can help reduce our ignorance, and as Dr. Atul Gawande points out in his bestselling book, The Checklist Manifesto: How to Get Things Right, checklists can help reduce our ineptitude.
With respect to the problem of escalation of commitment, recent research summarizing studies conducted over the past three and a half decades has helped to reduce our ignorance about why this problem occurs and provides an excellent starting point for creating a checklist to help us apply that knowledge.
Michigan State University researchers, Dustin Sleesman, Donald E. Conlon, Gerry McNamara, and Jonathan E. Miles began with a list of over 900 published academic journal articles and identified 166 articles that used empirical data to study the escalation of commitment phenomenon. Their analysis summarizes the findings across these prior articles and supports the idea that several different factors influence the decision to escalate commitment to a failing course of action.
Nonprofit leaders trying to decide whether or not to continue supporting a project can use the questions below to reduce the chances of falling into the escalation of commitment trap. The questions are organized into three groups, consistent with the theory and data analyzed by the Michigan State team.
- Decision Risk: Have I considered the riskiness of the project, given information that I have now but did not have when I made the original decision?
- Opportunity Costs: Have I considered what else I could do with resources that would be available if I decided to stop investing in this project?
- Information Availability: Am I using the uncertainty about the likelihood of project success as a reason to focus only on positive indicators?
- Positive Performance Trend Information: Am I allowing information about some positive trends to overshadow information about worst-case scenarios?
- Expressed Preference for Initial Decision: Am I allowing my personal preferences to outweigh the information I have at this point about the viability of the project?
- Individual Psychological Issues
- Sunk Costs: Am I allowing myself to be influenced by the amount of money and time that already has been invested? [Remember: Sunk costs are NOT relevant for the current decision.]
- Expertise and Confidence: Am I overly confident in my own experience and expertise?
- Personal Identity: Am I overly concerned about my own reputation because I made the original decision? Do I feel that it would hurt my career if I put the brakes on this project?
- Information Framing & Regret: Have I considered the decision by framing the outcome only from one perspective? Although a 60% chance of success is mathematically the same as a 40% chance of failure, research shows that people often make different decisions when equivalent probabilities are framed positively (probability of success) than when they are framed negatively (probability of failure) (Kahneman, 2012). Have I considered how much regret I will feel if I continue to invest and the project still fails?
- Altered Goals: Have I lost sight of the original goal of the project and become too focused on the goal of completing the project?
- Social & Structural Issues
- Group Identity: Am I going along against my better judgment because I don’t want to challenge members of my group? Am I afraid that objecting to continuing to invest in the project will reduce my power in my group or organization?
- External factors: Am I feeling pressured to continue with this project because of concerns about what competitors are doing or what customers are asking for?
- Agency problems: Does the organization have a “failure is unacceptable” culture that is causing me to continue investing to avoid having to admit that the initial decision was not the best choice? Are the reward systems in the organization misaligned so that the organization’s best interests are not consistent with my own self-interest?
Decisions about whether and how much to invest in different projects rarely are simple. We cannot always know for certain what the best course of action should be. By asking questions like the ones above, however, we can reduce the extent to which our thinking is influenced by factors that are not actually related to the ultimate likelihood of project success or failure.
Gawande, A. (2010). The Checklist Manifesto: How to get Things Done Right. New York: Picador.
Kahneman, D. (2012). Thinking, Fast and Slow. New York: Farrar, Straus and Giroux.
Sleesman, D. J., Conlon, D. E., McNamara, G., Miles, J. E. (2012). Cleaning up the big muddy: A meta-analytic review of the determinants of escalation of commitment. Academy of Management Journal, 55(3): 541- 562.
Lynda St. Clair, Ph.D., is a retired management professor and co-author of Becoming a Master Manager, now in its fifth edition.