Abstract for: Dynamics of Escalation of Commitment

Escalation of commitment refers to the tendency of decision-makers to invest in failing courses of action. Research has shown that there are various causes of escalation, ranging from economic to psychological, social, and organizational factors. Even though the existence of the escalation bias is well established through experimental and case research the dynamics of escalation is not very clear. There are two possible explanations to how commitment evolves to generate escalation. The first one is the temporal model which suggests that initially economic factors will be determined and in time behavioral factors will gain dominance. The second one is the aggregate model which suggests that the relative importance of behavioral variables versus economic factors leads to escalation or withdrawal. This paper reports on a System Dynamics model that was used to test these two explanations to see which generates the escalation prototype.