9 - The escalation of commitment: An update and appraisal

Summary

Introduction

This chapter is about decision making in escalation situations. It is about the way people deal with predicaments in which things not only have gone wrong but in which corrective actions can actually deepen or compound the difficulty. Let me provide some examples.

When people have lost money in common stocks or mutual funds, they often face a dilemma. Should they stick with their losing investments, increase their stake (perhaps through dollar cost averaging), or move their holdings to an entirely different investment vehicle? Virtually the same dilemma confronts people who are dissatisfied with their current jobs, careers, or marriages. They must decide whether it is wise to continue in these situations or start anew with different firms, occupations, or partners.

Organizations must also cope with escalation dilemmas. Corporations can spend enormous sums developing new products, only to find that the consumer response is lukewarm. When this occurs, should the firm spend further resources to promote the lagging product as it currently exists, send it back to the laboratory for reengineering, or scrap it altogether? In the financial sector, banks face a similar predicament when they deal with problem loans. If the borrower is not making interest payments, banks must determine whether it is better to work with the troubled client (perhaps by providing additional financing), take additional collateral, or withdraw from the account altogether.

Although these personal and organizational examples come from very different areas of experience, they do contain common elements.