Escalation of Commitment or’Throwing Good Money After Bad’
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A popular strategy in playing blackjack is suppose to’guarantee’ you can’t lose: when you lose a hand, double your next bet. While this strategy or decision rule may seem innocent enough, if you start with$5 and lose six hands in a row(a not uncommon occurrence for many of us), you’ll be wagering$320 on your seventh hand merely to recoup your losses and win$5!
A friend of mine had been dating a woman for about four years. Although he admitted things weren’t going too well in the relationship, he informed me he was going to marry the woman. A bit surprised by this decision, I asked him why. He responded, ’I have a lot invested in this relationship!’
The blackjack strategy and marriage decision just described illustrate a phenomenon called escalation of commitment. Specifically, it is defined as an increased commitment to a previous decision in spite of negative information. It has been well documented that individuals escalate commitment to a failing course of action when they view themselves as responsible for the failure. That is, they’throw good money after bad’ to demonstrate their initial decision wasn’t wrong and to avoid having to admit they made a mistake.
Maybe the most frequently cited example of the escalation of commitment phenomenon was President Lyndon Johnson’s decisions regarding the Vietnam War. Despite continued information that bombing North Vietnam was not bringing the war any closer to conclusion, his solution was to increase the tonnage of bombs dropped. More recently, the premier of Ontario, David Peterson, committed an additional$4 billion to complete the Darlington nuclear plant in spite of evidence that original energy consumption forecasts used to justify building the plant were overly optimistic. Peterson became increasingly preoccupied with funds that had been spent to construct the megaproject:’I don’t think anybody can look at a situation with .$ 7 billion in the ground and just cavalierly write it off.’ But that’s what he should have done as the final price tag ballooned to$14 billion and energy consumption diminished.
Escalation of commitment has broad implications for managerial decisions in organizations. Many an organization has suffered large losses because a manager was determined to commit resources to what was a lost cause from the beginning.
Extracted from’Organisation behaviour: Concepts, Controversies, Applications’ by Stephen P. Robins, Chap 4(pp 159-160), 7th Edition, Prentice-Hall, 1996.