Escalation of commitment

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Escalation of commitment is a human behavior pattern in which an individual or group facing increasingly negative outcomes from a decision, action, or investment nevertheless continues the behavior instead of altering course. The actor maintains behaviors that are irrational, but align with previous decisions and actions. [1]

Contents

Economists and behavioral scientists use a related term, sunk-cost fallacy, to describe the justification of increased investment of money or effort in a decision, based on the cumulative prior investment ("sunk cost") despite new evidence suggesting that the future cost of continuing the behavior outweighs the expected benefit.

In sociology, irrational escalation of commitment or commitment bias describe similar behaviors. The phenomenon and the sentiment underlying them are reflected in such proverbial images as "Throwing good money after bad," or "In for a penny, in for a pound," or "It's never the wrong time to make the right decision," or "If you find yourself in a hole, stop digging."

Early use

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". [2]

Researchers, inspired by the work of Staw, conducted studies that tested factors, situations and causes of escalation of commitment. The research introduced other analyses of situations and how people approach problems and make decisions. Some of the earliest work stemmed from events in which this phenomenon had an effect and help explain the phenomenon. [1]

Researchers define escalation of commitment

Over the past few decades, researchers have followed and analyzed many examples of the escalation of commitment to a situation. The heightened situations are explained in three elements. Firstly, a situation has a costly amount of resources such as time, money and people invested in the project. Next, past behavior leads up to an apex in time where the project has not met expectations or could be in a cautious state of decline. Lastly, these problems all force a decision-maker to make choices that include the options of continuing to pursue a project until completion by adding additional costs, or canceling the project altogether. [3]

Researchers have also developed an argument regarding how escalation of commitment is observed in two different categories. [4] Many researchers believe that the need to escalate resources is linked to expectancy theory. "According to such a viewpoint, decision makers assess the probability that additional resource allocations will lead to goal attainment, as well as the value of goal attainment (i.e., rewards minus costs), and thereby generate a subjective expected utility associated with the decision to allocate additional resources." [4] The next phase of the escalation process is self-justification and rationalizing if the decision the leader made used resources well, if the resources being used were used to make positive change, and assuring themselves that the decision they chose was right. Leaders must balance costs and benefits of any problem to produce a final decision. What matters most often in assuring the leader that they made the right choice regardless of the final outcome is if their decision is what others believed in. [4]

Research conducted on the topic has been taken from many other forms and theories of psychology. Many believe that what researchers have done thus far to explain this behavior is best analyzed and tested through situational development and resource allocation. [4]

Other research has identified circumstances that lead to the opposite of escalation of commitment, namely deescalation of commitment. This research explains the factors that influence whether escalation or deescalation of commitment is more likely to occur through the role of budgeting and mental accounting. [5]

Vietnam War

Escalation of commitment can many times cause behavior change by means of locking into resources. One of the first examples of escalation of commitment was described by George Ball, who wrote to President Lyndon Johnson to explain to him the predictions of the war outcome: [1]

The decision you face now is crucial. Once large numbers of U.S. troops are committed to direct combat, they will begin to take heavy casualties in a war they are ill equipped to fight in a noncooperative if not downright hostile countryside. Once we suffer large casualties, we will have started a well-nigh irreversible process. Our involvement will be so great that we cannot—without national humiliation—stop short of achieving our complete objectives. Of the two possibilities, I think humiliation would be more likely than the achievement of our objectives—even after we have paid terrible costs. [6]

Theories

Self-justification theory

Self-justification thought process is a part of commitment decisions of leaders and managers of a group and can therefore cause a rise in commitment levels.[ citation needed ] This attitude provides "one explanation for why people escalate commitment to their past investments." [7] Managers make decisions that reflect previous behavior. Managers tend to recall and follow information that is aligned to their behavior to create consistency for their current and future decisions. If a group member or outside party recognizes inconsistent decision making, this can alter the leadership role of the manager. Managers have external influence from society, peers, and authority, which can significantly alter a manager's perception on what factors realistically matter when making decisions.[ citation needed ]

Prospect theory

Prospect theory helps to describe the natural reactions and processes involved in making a decision in a risk-taking situation. Prospect theory makes the argument for how levels of wealth, whether that is people, money, or time, affect how a decision is made. Researchers were particularly interested in how one perceives a situation based on costs and benefits. [4] The framing to how the problem is introduced is crucial for understanding and thinking of the probability that the situation will either work in favor or against you and how to prepare for those changes. "Whyte (1986) argued that prospect theory provides the psychological mechanism by which to explain escalating commitment to a failing course of action without the need to invoke self-justification processes. (Fiegenbaum & Thomas, 1988: 99)" [4] Prospect theorists believe that one's use of this process is when there is a negative downfall in the stakes that will affect the outcome of the project. To ensure they will not fail, the individual may add more resources to assure them that they will succeed. Although this theory seems realistic, researchers "Davis and Bobko (1986) found no effect of personal responsibility on continued commitment to the previous course of action in the positive frame condition." [4] Which means that escalation of commitment will be lower in the higher responsibility situation.

Attribution theory

The attribution theory, originating from Fritz Heider, "attempts to find causal explanations for events and human behaviors." This theory approaches two methods of inquiry including locus of causality and stability.[ citation needed ] Locus of causality reflects on internal characteristics of an individual, such as intelligence levels and attention seeking, with the relationship of the external space such as weather forecasts and task difficulty.[ citation needed ] Aspects of control become a significant factor in how a manager justifies a decision made. Managers will use the relationship between internal and external factors to describe why they made a decision to a single point of view. Managers may justify their actions by explaining that this was out of their personal control of the event, or they could believe that the decision could not be controlled by anyone else. Research suggests that "the type of attribution made by an employee across these dimensions is likely to impact an employee's tendency to engage in the negative emotional activity referred to as escalation of commitment."[ citation needed ]

Social identity theory

Identity is a large part of how we move through the world. Private thoughts and opinions as well as the effect of others create the social identity theory. People make connections between their use of groups and their own view of themselves, which researchers have discovered motivates people to keep their social status and to defend it whenever it is endangered. [8]

Theoretical models

Temporal model of escalation

Groups engage in temporal comparisons, which means that you compare actions and behaviors at "different points in time." [8] This is a form of social identity scenario. This type of comparison can be made when a decision seems unproductive and forces team members to consider any threat to the group. [8]

Aggregate model

"The aggregate model's emphasis is upon the accumulation and balance of forces rather than the ordering of effects over time." [1] The model is general and can provide an ideal view as to how the effects whether positive or negative are defined by micro and macro forces. This model goes by situation rather than what researchers have defined as the norm. There is no process to follow, which makes it very useful for researchers because they can understand a situation more clearly as well as see the bigger picture of the situation. [1]

Determinants

The main drivers of the tendency to continue investing in losing propositions are project, psychological, social, and structural. [9]

Project

Project determinants are those that refer to the original commitments and decisions made at a project's beginning. This includes general project characteristics and initial financial costs. [10] Among them, decision risk, opportunity cost information, and information acquisition have been found to have negative relationships with escalation of commitment. Decision uncertainty, positive performance trend information, and expressed preference for initial decision have been found to have positive relationships. [9]

High costs of ending a project or changing its course, potential financial gain upon completion, and extensive structure can factor in to escalation of commitment, making it difficult to walk away from the project. Preventing future monetary loss, potential savings, and having clearly available alternatives can allow for avoidance of the behavior. In studies by Teger and later Ross and Staw, situations where ending an action costs more than completing it resulted in decision makers being trapped in their current, costly behaviors. [1]

Psychological

Psychological determinants are those that refer to internal views on the actions and information involved in a project. This can include cognitive factors, personality, and emotions as they relate to project elements. [10] Of these, sunk costs, time investment, decision maker experience and expertise, self-efficacy and confidence, personal responsibility for the initial decision, ego threat, and proximity to project completion have been found to have positive relationships with escalation of commitment, while anticipated regret and positive information framing have been found to have negative relationships. [9]

Optimism and belief that one has control over what will still be positive outcomes lead to continued self-justification of commitment to actions. People add to their initial personal investments in the hope they will overcome currently negative results. This was illustrated in a case study by Staw, where providing business students with manipulated responsibilities for initial decisions and their outcomes resulted in the greatest commitment to increased actions and resources when the initial decision assigned was made directly by the student with poor outcomes. [1] In these instances, people take further risk in an attempt to avoid further problems. This is even more likely when subjects view current issues as having unstable reasoning rather than stable reasoning, or when the individual is unwilling to admit mistakes. [4] They then believe the situation will stabilize or turn around. Confirmation bias can also lead to escalation of commitment as individuals are then less likely to recognize the negative results of their decisions. [7] On the other hand, if the results are recognized, they can be blamed on unforeseeable events occurring during the course of the project.

The effect of sunk costs is often seen escalating commitment. When the amount of investment is greater and can not be recovered, the desire to avoid complete loss of those resources and keeping with impression management prompts continued investment over pulling out. [7] Relatedly, as invested resources can include time, closeness to completion of a project yields similar results. More value is placed on project when they are early or late in their process due to the clarity of completion goals at those points. [11] It's more likely that risks will be taken at these points than in a project closer to a visible midpoint.

Social

Social determinants are those that refer to the expectations and influence of other individuals or groups on project actions. Included in these, group identity or cohesive strength has been found to have the most influence on escalation of commitment while public evaluation of decision and resistance to decision from others has little significance in relation. [9]

External justification and binding

Individuals present themselves cautiously to others in the environment. They don't concentrate on themselves and what they believe is accurate and competent—they are only interested in their organization appearing competent. Escalation of commitment is about decision making that usually comes in a form of a group or individual deciding a course of action. Managers have a responsibility to choose the fate of what a group of people have been working on. A manager who decides to back a team out of a project isn't concerned that the project failed, they are concerned that team members may think the manager is incompetent. Studies that tested this phenomenon included factors such as policy resistance, job insecurity (Fox & Staw 1979), and audience size (Rubin & Lang 1981). All showed a spike in commitment when these realistic factors are present. This mental and emotional response is referred to as the face-saving effect. Individuals who are responsible for others are constantly checking themselves to assure that their actions and beliefs are parallel to the expectations for their viewers. One's social identity to the public can decide your fate. For example, a team can identify a level of commitment and personal connection to an idea or project. Team members consistently use statements like "that project is Bob's baby," or "oh, we had the same idea." Both ends of the spectrum are crucial to how others view and analyze a situation, especially something that failed. [1]

Leadership norms

Leaders are responsible for guiding a team through the difficult problems into a solution. Although many times, the negative aspects of commitments can be discussed in more detail and importance, there are many social rewards that are positive. One example of this phenomenon is persistence. A project on the verge of failure is a manager's responsibility to revive, but with persistence, a manager can get rewarded to turning a bad project into something great. Rewards are earned for turning around a team to produce something successful. When managers stick to their goals, and get their team to produce responsibly. [1]

Structural

Structural determinants are those that refer to the cultural and environmental features and resources of the project's overall organization. The minimal research available on them indicates that agency problems most influence escalation of commitment. [9]

There are macro-level variables that affect the organizational structure of a team and how they make decisions. Decisions are made based on individuals in a group setting with specific roles and responsibilities and effect decisions that are a product of interaction in the team. The determinant that affects escalation of commitment is institutional inertia. This phenomenon is used to describe how individual attitudes and behavior changes frequently, so therefore, a group's stature is also unpredictable and controllable. "Organizations have very imperfect sensory systems, making them relatively impervious to changes in their environments." [1]

This is one factor that plays a role in how issues are addressed. When there are a group of individuals involved in communication, decisions, and change, with the lack of consistency in the group, most of the tasks fail to complete. This phenomenon occurs in situations such as policy change, rulings and procedures. [1]

This issue can also cause havoc for an organization when they are too attached to a policy, thought process or identity because they are not free to change. "On occasion, a project, product, or policy can become so closely tied to the values and purposes of the organization that it becomes almost unthinkable to consider withdrawal." [1] One primary example of this phenomenon is the downfall of the Pan American World Airways company, commonly known as Pan Am. Pan Am was a well known airlines and hotel with hundreds of employees. With the turn of industry, airline policies were deregulated and caused financial downfall for Pan Am. The company over time made cuts to their company to stay afloat. The company believed that their image of being an airline was more important than being a successful company that they removed all of the assets that were in fact making them the largest amount of revenue only to save the image they thought they needed to remain to be Pan Am. [1]

Groups vs individuals

In groups, it can be more difficult to attribute issues to a single, simpler determinant. While determinants are still applicable, oftentimes there are more complex factors when organizational goals and actions misalign. Groups, especially as they grow larger, can be resistant to changing course.

Even if the need to change course or cease action is recognized, communication speed, policies, and business politics can be hindrances. [1] A larger organization, especially one with a spread of subgroups, has to communicate the argument and decision to go against previous actions across the appropriate levels. If this communication does not occur in a timely manner or is blocked, the final decision may not be made and acted upon. A decision that goes against existing rules and processes may also reach resistance even with support from those within the organization. Individuals and groups that are directly employed due to a project, have financial stake in it may provide enough opposition to prevent changes from being made as well. They feel personally responsible for the parts they've worked on and can also feel that they too are being replaced or terminated. [12] Escalation of commitment can then occur in any of these situations. External groups can play an even larger part in escalating commitment if their power is greater than that of the group taking action and they use that power to directly lead and influence. [1]

With a larger number of decision makers included, groups have the opportunity for greater productivity than single individuals, but they also have the opportunity for greater losses and escalation. [13] Members can eliminate some of the escalation potential if they come to a better decision earlier on in the process and avoid the need to change course dramatically. Yet they can also hold onto a larger base of support for their initial actions to the point where escalation potential is increased. In this case, groupthink assists in keeping with the original decision and pressures towards conformity rather than dividing the group with other options. Also, a group whose members are not cohesive can have decreased escalation potential due to conflicts and varying levels of inclusion in the process. [13]

Organizations that are family businesses are especially prone to escalation of commitment due to the added level of going through the family structure in addition to the business structure, allowing for further conflicts between the two. [14] Business reputation, customer and share loss, and financial loss become risks.

Examples

See also

Related Research Articles

Industrial and Organizational Psychology, which is also known as occupational psychology, organizational psychology, or work and organizational psychology; is an applied discipline within psychology. I/O psychology is the science of human behavior relating to work and applies psychological theories and principles to organizations and individuals in their places of work as well as the individual's work-life more generally. I/O psychologists are trained in the scientist–practitioner model. They contribute to an organization's success by improving the performance, motivation, job satisfaction, and occupational safety and health as well as the overall health and well-being of its employees. An I/O psychologist conducts research on employee behaviors and attitudes, and how these can be improved through hiring practices, training programs, feedback, and management systems.

Sunk cost costs that have already been incurred and cannot be recovered

In economics and business decision-making, a sunk cost is a cost that has already been incurred and cannot be recovered. Sunk costs are contrasted with prospective costs, which are future costs that may be avoided if action is taken. In other words, a sunk cost is a sum paid in the past that is no longer relevant to decisions about the future. Even though economists argue that sunk costs are no longer relevant to future rational decision-making, in everyday life, people often take previous expenditures in situations such as repairing a car or house into their future decisions regarding those properties.

Procedural justice is the idea of fairness in the processes that resolve disputes and allocate resources. One aspect of procedural justice is related to discussions of the administration of justice and legal proceedings. This sense of procedural justice is connected to due process (U.S.), fundamental justice (Canada), procedural fairness (Australia), and natural justice, but the idea of procedural justice can also be applied to nonlegal contexts in which some process is employed to resolve conflict or divide benefits or burdens. Other aspects of procedural justice can also be found in social psychology and sociology issues and organizational psychology.

Leadership ability of an individual or organization to guide other individuals, teams, or entire organizations

Leadership is both a research area and a practical skill encompassing the ability of an individual or organization to "lead" or guide other individuals, teams, or entire organizations. Specialist literature debates various viewpoints, contrasting Eastern and Western approaches to leadership, and also United States versus European approaches. U.S. academic environments define leadership as "a process of social influence in which a person can enlist the aid and support of others in the accomplishment of a common task".

Team group linked in a common purpose

A team is a group of individuals working together to achieve their goal.

Collective action action taken together by a group of people whose goal is to enhance their status and achieve a common objective

Collective action refers to action taken together by a group of people whose goal is to enhance their status and achieve a common objective. It is a term that has formulations and theories in many areas of the social sciences including psychology, sociology, anthropology, political science and economics.

Decision-making Cognitive process resulting in choosing a course of action

In psychology, decision-making is regarded as the cognitive process resulting in the selection of a belief or a course of action among several alternative possibilities. Decision-making is the process of identifying and choosing alternatives based on the values, preferences and beliefs of the decision-maker. Every decision-making process produces a final choice, which may or may not prompt action.

Senior management, executive management, upper management, or a management team is generally a team of individuals at the highest level of management of an organization who have the day-to-day tasks of managing that organization—sometimes a company or a corporation.

Social exchange theory Theory on human behavoir

Social exchange theory is a sociological and psychological theory that studies the social behavior in the interaction of two parties that implement a cost-benefit analysis to determine risks and benefits. Also, the theory involves economic relationships, it occurs when each party have goods that the other parties value. Social exchange theory suggests that these calculations occur in romantic relationships, friendships, professional relationships and ephemeral relationships as simple as exchanging words with a customer at the cash register. Social exchange theory says that if the costs of the relationship are higher than the rewards, such as a lot of effort or money put into a relationship and not reciprocated, this could lead to problems.

Goal setting involves the development of an action plan designed to motivate and guide a person or group toward a goal. Goal setting can be guided by goal-setting criteria such as SMART criteria. Goal setting is a major component of personal-development and management literature.

Behavior change, in the context of public health, refers to efforts put in place to change people's personal habits and attitudes, to prevent disease. Behavior change in public health is also known as social and behavior change communication (SBCC). More and more, efforts focus on prevention of disease to save healthcare care costs. This is particularly important in low and middle income countries, such as Ghana, where health interventions have come under increased scrutiny because of the cost.

Competence is the set of demonstrable characteristics and skills that enable, and improve the efficiency of, performance of a job. The term "competence" first appeared in an article authored by R.W. White in 1959 as a concept for performance motivation. In 1970, Craig C. Lundberg defined the concept in "Planning the Executive Development Program". The term gained traction when in 1973, David McClelland wrote a seminal paper entitled, "Testing for Competence Rather Than for Intelligence". It has since been popularized by Richard Boyatzis and many others, such as T.F. Gilbert (1978) who used the concept in relationship to performance improvement. Its use varies widely, which leads to considerable misunderstanding.

Behavioral operations research (BOR) examines and takes into consideration human behavior and emotions when facing complex decision problems. BOR is part of Operational Research. BOR relates to the behavioural aspects of the use of operations research in problem solving and decision support. Specifically, it focuses on understanding behaviour in, with and beyond models. The general purpose is to make better use and improve the use of operations research theories and practice, so that the benefits received from the potential improvements to operations research approaches in practice, that arise from recent findings in behavioural sciences, are realised. BOR approaches have heavily influenced supply chain management research, amongst others.

Market microstructure is a branch of finance concerned with the details of how exchange occurs in markets. While the theory of market microstructure applies to the exchange of real or financial assets, more evidence is available on the microstructure of financial markets due to the availability of transactions data from them. The major thrust of market microstructure research examines the ways in which the working processes of a market affect determinants of transaction costs, prices, quotes, volume, and trading behavior. In the twenty-first century, innovations have allowed an expansion into the study of the impact of market microstructure on the incidence of market abuse, such as insider trading, market manipulation and broker-client conflict.

For the application of engineering economics in the practice of civil engineering see Engineering economics.

Moral disengagement is a term from social psychology for the process of convincing the self that ethical standards do not apply to oneself in a particular context. This is done by separating moral reactions from inhumane conduct and disabling the mechanism of self-condemnation. Thus, moral disengagement involves a process of cognitive re-construing or re-framing of destructive behavior as being morally acceptable without changing the behavior or the moral standards. In social cognitive theory of morality, self-regulatory mechanisms embedded in moral standards and self-sanctions translate moral reasoning into actions, and, as a result, moral agency is exerted. Thus, the moral self is situated in a broader, socio-cognitive self-theory consisting of self-organizing, proactive, self-reflective, and self-regulative mechanisms. Three major sub-functions are operating in this self-regulatory system in which moral agency is grounded. The first sub-function is self-monitoring of one's conduct, which is the initial step of taking control over it. "Action gives rise to self-reactions through a judgmental function in which conduct is evaluated against internal standards and situational circumstances". Thus, moral judgments evoke self-reactive influence. The self-reactive and judgmental mechanisms constitute the second and third sub-function.

Job performance assesses whether a person performs a job well. Job performance, studied academically as part of industrial and organizational psychology, also forms a part of human resources management. Performance is an important criterion for organizational outcomes and success. John P. Campbell describes job performance as an individual-level variable, or something a single person does. This differentiates it from more encompassing constructs such as organizational performance or national performance, which are higher-level variables.

Self-justification describes how, when a person encounters cognitive dissonance, or a situation in which a person's behavior is inconsistent with their beliefs, that person tends to justify the behavior and deny any negative feedback associated with the behavior.

Situational Leadership Theory, or the Situational Leadership Model, is a model created by Paul Hersey and Ken Blanchard, developed while working on Management of Organizational Behavior. The theory was first introduced in 1969 as "life cycle theory of leadership". During the mid-1970s, life cycle theory of leadership was renamed "Situational Leadership Theory."

Interdependence theory is a social exchange theory that states that interpersonal relationships are defined through interpersonal interdependence, which is "the process by which interacting people influence one another's experiences"(Van Lange & Balliet, 2014, p. 65). The most basic principle of the theory is encapsulated in the equation I = ƒ[A, B, S], which says that all interpersonal interactions (I) are a function (ƒ) of the given situation (S), plus the actions and characteristics of the individuals in the interaction. The theory's four basic assumptions are 1) The Principle of Structure, 2) The Principle of Transformation, 3) The Principle of Interaction, and 4) The Principle of Adaption.

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