August 25: Escalation of commitment
The escalation of commitment can help explain why some organizations continue to devote resources to failing projects.
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Source: The Decision Lab
Published: July 2020
Escalation of commitment
Escalation of commitment, also known as commitment bias, occurs when a decision-maker continues to devote resources to a failing project instead of cutting losses. Psychologists refer to this behavioral pattern as the “sunk cost fallacy,” which is when individuals continue a behavior due to previously invested resources (time, money, or effort).
Example 1: Sony continues to produce electronics despite losing $8.5 billion in over 10 years.
Example 2: The US Air Force failed to develop a combat support software after spending 8 years and $1.1 billion on the project.
Example 3: Stock investors may hold onto a stock longer than would be advantageous, simply because they already committed to the investment.
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