How is it that drivers sometimes stubbornly continue down a road even though it has long been clear that they have lost their way? What drives students who fail all their exams to continue their studies without reflection? Why do some people stand by their spouse even though they lead an immoral life?
Examples from politics and business also show that wars are continued even though they have long been lost and only result in further casualties. Investment projects are pursued even though the cost increases have already completely eaten up the expected returns. Companies hold on to underperforming employees even though it has long been clear that they should actually be let go.
I'm sticking with it now – Escalating commitment
Behind this lies an interesting phenomenon known as escalating commitment or sunk costs. It causes people to invest further resources in an obviously losing venture because it has already cost them so much effort, money, and time. Or because they believe they are "close to their goal."
The following factors play a role here
INFLUENCING FACTOR |
EFFECT |
| Features of the project | |
| Amount of project completion costs | Costs incurred by terminating the project increase the economic barrier to terminating the project. |
| Availability of feasible alternatives | If no alternatives are available, the chosen course of action will inevitably be maintained. |
| Psychological reasons | |
| optimism | The belief that everything will turn out for the best, including a project that has gone off track. |
| self-justification | Admitting to having made a mistake is incompatible with one's self-image. Negative information is therefore doubted. |
| Social reasons | |
| External justification | Face must be saved. Abandoning the project would be seen as an admission of having made a mistake. |
| Expectations of leaders | Leaders are usually expected to demonstrate perseverance and consistent behavior. Abandoning a project would lead to a negative assessment of their leadership abilities. |
| Organizational reasons |
|
| Bureaucratic inertia | Between recognizing the problem and solving it, there are many bureaucratic hurdles that can delay the termination of a misguided project. |
| Political reasons | People affected by the termination of the project could resist and, if they have sufficient power, prevent the project from being terminated. |
This phenomenon was demonstrated in empirical studies by Staw and Ross (1987, 1993), among others. For example, they examined the 1986 World Expo in Vancouver and the construction of the Shoreham nuclear power plant:
Millions become billions
The original plan for the World Expo in Vancouver called for investments of $78 million. It quickly became apparent that this figure was completely unrealistic. Although costs continued to rise (ultimately reaching $1.2 billion) and the expected deficit was $300 million, the government stuck with the project.
The original budget for the construction of the nuclear reactor in Shoreham was $75 million. In fact, the costs rose to more than $5 billion within 23 years. Ultimately, the project was abandoned without the power plant ever going into operation.
You think that couldn't happen to you?
Please consider the following example: You have to decide how many resources you want to continue investing in two projects. Both projects have been running for a year. The prospects of success for both projects are rather poor. You have already invested a lot of money and time in both. The first project is 15 percent complete, the second about 85 percent. How much would you continue to invest in each project?
From an economic perspective, it is of course more important to consider the current prospects of success for the project ("How good are the chances of success right now?") than the past investments ("How much have I already invested?"). After all, the latter have already been made either way—regardless of whether further investments are made or not.
"Almost done"
In reality, however, people often feel obligated by the investments they have already made, which is why they continue to invest. This is especially true when the project is nearing completion—when it is already 85 percent complete (compared to only 15 percent at the start). At this point, they have "almost made it," so to speak, and may be focused on the positive feeling they will experience when the goal is achieved. However, they may continue to invest in a project that is unlikely to succeed. In other words, they throw "good money" after "bad money." This is human nature, but not exactly effective.
Invest or let go?
But how can you tell whether you should continue investing in projects, relationships, or even employees, or whether you should turn your attention to something else? Research has yielded some interesting findings on this topic. While these findings cannot provide you with universally applicable recommendations for action, they can certainly give you some ideas for practical application.
- For example, people showed significantly less escalating commitment when they had to justify an investment to others. So who could you potentially seek out as a "sparring partner"?
- In addition, you should examine as impartially as possible what "costs" and "opportunity costs" will arise if you persist in your chosen path. In other words, whether it would not be better, easier, or more cost-effective to take a different path.
- Focusing on potential losses—as opposed to focusing on potential successes and gains—can also be helpful.
If you focus on potential profits, you invest heavily in a project that is 85 percent complete but has little chance of success. This is because you are more likely to see the imminent profit once you have achieved your goal. And less likely to see the information that the project actually has little chance of ever really being completed.
This is related to the optimism shown in the table: people who are particularly optimistic tend to be less inclined to take warning signs of undesirable developments too seriously. But should you let that dampen your optimism? Certainly not. Optimism does not necessarily lead to escalating commitment. Furthermore, the importance of optimism for motivation can hardly be overestimated.
Clarify motives and goals
In any case, it makes sense to regularly review your own motivations and goals.
Ask yourself:
- Is it still about achieving the goal, or is it now just about "being right"?
- Do you still have the original goal in mind, or has the goal changed?
- Do the goals you are striving for still correspond to your own ideas and fit in with your self-image?
- Would it make sense to rethink your ideas, desires, attitudes, and lifestyle because you cannot really live with the given commitment?
In short: if you want to achieve ambitious goals, you need perseverance and a healthy dose of tolerance, even in the face of setbacks. On the other hand, you shouldn't get carried away – you also need to be able to abandon a chosen path. Commitment is and remains a balancing act. Depending on which direction you look, completely opposite movements may seem appropriate.
Your team at the Grundl Leadership Institute
Image source: ©pixabay
