Escalation of commitment

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Escalation of commitment was first described by Barry M. Staw in his 1976 paper, "Knee deep in the big muddy: A study of escalating commitment to a chosen course of action".^[1] More recently the term "sunk cost fallacy" has been used to describe the phenomenon where people justify increased investment in a decision, based on the cumulative prior investment, despite new evidence suggesting that the cost, starting today, of continuing the decision outweighs the expected benefit. Such investment may include money, time, or even — in the case of military strategy — human lives. The phenomenon and the sentiment underlying it are reflected in such proverbial images as "Throwing good money after bad", "In for a dime, in for a dollar", or "In for a penny, in for a pound".

The term is also used to describe poor decision-making in business, politics, and gambling. The term has been used to describe the United States commitment to military conflicts including Vietnam in the 1960s - 1970s and in Iraq in the 2000s, where dollars spent and lives lost justify continued involvement.^[2]

Additionally, "irrational escalation" (sometimes referred to as "irrational escalation of commitment" or "commitment bias") is a term frequently used in psychology and sociology to refer to a situation in which people can make irrational decisions based upon rational decisions in the past or to justify actions already taken. Examples are frequently seen when parties engage in a bidding war; the bidders can end up paying much more than the object is worth to justify the initial expenses associated with bidding (such as research), as well as part of a competitive instinct.

Four main determinants

The main drivers of the tendency to invest in losing propositions are:^[3]

Social (peer pressure)
Psychological (gambling)
Project (past commitments)
Structural (cultural and environmental factors)

Examples

The dollar auction is a thought exercise demonstrating the concept.
After a heated and aggressive bidding war, Robert Campeau ended up buying Bloomingdale's for an estimated $600 million more than it was worth. The Wall Street Journal noted that "we're not dealing in price anymore but egos." Campeau was forced to declare bankruptcy soon afterwards.^[4]

References

↑ Barry M. Staw: "Knee-deep in the Big Muddy: A Study of Escalating Commitment to a Chosen Course of Action". Organizational Behavior and Human Performance 16(1):27-44.
↑ Barry Schwartz, The Sunk-Cost Fallacy, Bush Falls Victim to a Bad New Argument for the Iraq War, Slate.com, Sept. 9, 2005, retrieved 6-11-08
↑ "Structural model of effects of cultural factors on escalation of commitment through antecedents, agency, and negative framing effects".
↑ Max H. Bazerman: Negotiating Rationally January 1, 1994 (ISBN 0-02-901986-9).

v t e Topics in game theory

Definitions	Normal-form game Extensive-form game Graphical game Cooperative game Succinct game Information set Hierarchy of beliefs Preference

Equilibrium concepts	Nash equilibrium Subgame perfection Mertens-stable equilibrium Bayesian-Nash Perfect Bayesian Trembling hand Proper equilibrium Epsilon-equilibrium Correlated equilibrium Sequential equilibrium Quasi-perfect equilibrium Evolutionarily stable strategy Risk dominance Core Shapley value Pareto efficiency Quantal response equilibrium Self-confirming equilibrium Strong Nash equilibrium Markov perfect equilibrium

Strategies	Dominant strategies Pure strategy Mixed strategy Tit for tat Grim trigger Collusion Backward induction Forward induction Markov strategy

Classes of games	Symmetric game Perfect information Simultaneous game Sequential game Repeated game Signaling game Cheap talk Zero-sum game Mechanism design Bargaining problem Stochastic game Large Poisson game Nontransitive game Global games

Games	Prisoner's dilemma Traveler's dilemma Coordination game Chicken Centipede game Volunteer's dilemma Dollar auction Battle of the sexes Stag hunt Matching pennies Ultimatum game Rock-paper-scissors Pirate game Dictator game Public goods game Blotto games War of attrition El Farol Bar problem Cake cutting Cournot game Deadlock Diner's dilemma Guess 2/3 of the average Kuhn poker Nash bargaining game Screening game Prisoners and hats puzzle Trust game Princess and monster game Monty Hall problem

Theorems	Minimax theorem Nash's theorem Purification theorem Folk theorem Revelation principle Arrow's impossibility theorem

Key figures	Kenneth Arrow Robert Aumann Kenneth Binmore Samuel Bowles Melvin Dresher Merrill M. Flood Drew Fudenberg Donald B. Gillies John Harsanyi Leonid Hurwicz David K. Levine Daniel Kahneman Harold W. Kuhn Eric Maskin Jean-François Mertens Paul Milgrom Oskar Morgenstern Roger Myerson John Nash John von Neumann Ariel Rubinstein Thomas Schelling Reinhard Selten Herbert Simon Lloyd Shapley John Maynard Smith Jean Tirole Albert W. Tucker William Vickrey Robert B. Wilson Peyton Young

See also	Tragedy of the commons Tyranny of small decisions All-pay auction List of games in game theory Confrontation analysis List of game theorists Combinatorial game theory

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Escalation of commitment

Four main determinants

Examples

See also

References