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”. 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 sunk costs in terms of dollars spent and lives lost were taken as justifying continued involvement.
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:
- Social (peer pressure)
- Psychological (gambling)
- Project (past commitments)
- Structural (cultural and environmental factors)