Breaking the Cycle of Escalation: Insights from a Behavioral Finance Experiment

-By Muhammed Elhamoui

Have you ever stuck to a failing investment, or kept driving the wrong way despite knowing better? These common scenarios reflect a fascinating psychological phenomenon called Escalation of Commitment, which I recently explored in a social experiment for my Behavioral Finance course at Istanbul Bilgi University under the supervision of my professor Cemal Tosun .

During our course, we explored the world of?heuristics,?which is present among individuals and thus in the business world. A heuristic refers to a mental shortcut or rule of thumb that often leads to biased, irrational, or suboptimal decision-making. Rather than relying on careful analysis or reasoning, a person using a poor heuristic makes snap judgments that overlook important details or alternatives. These shortcuts often result in errors, misjudgments, and poor decisions.

I dived specifically into Escalation of Commitment because I’ve observed it frequently in day-to-day choices. For example, someone might stay in a long line simply because they've already waited, even though leaving would save them time. Similarly, in relationships, individuals might continue to invest effort into a friendship or partnership that’s clearly not working, fearing the emotional cost of admitting failure.

Also, In the business world, escalation of commitment is common in situations such as project management, where corporations continue to invest resources in failed initiatives rather than cutting their losses. A prime example is a merger or acquisition that isn't working out but is nevertheless pursued owing to sunk costs, reputation concerns, or a refusal to recognize mistakes

Everyone remembers the “remarkable” Concorde Project; in which the British and French governments continued to invest extensively in a supersonic jet development despite accumulating evidence of financial infeasibility and low market demand, moved by national pride and past resource commitments.

In the corporate world, escalation is common in failing mergers or projects, as seen in the AOL-Time Warner merger, where executives continued to integrate operations despite conflicting strategies and poor returns, owing primarily to reputational concerns and a reluctance to admit failure. Such persistence frequently wastes resources and misses opportunities for more reasonable reallocations, emphasizing the need for improved decision-making frameworks to address this heuristic.

Escalation of Commitment Based on a Social Experiment:

I conducted this social experiment because I wanted to explore how common Escalation of Commitment is in everyday decision-making. By examining how people tend to persist in failing situations, I aimed to understand how often individuals are influenced by emotional biases, such as the fear of admitting failure, the sunk cost fallacy, or the desire to maintain consistency with past decisions. I wanted to see, more specifically, how these tendencies manifest in various scenarios—like waiting in long lines, continuing with a wrong turn while driving, or holding onto a losing investment—so I could gain a better understanding of how pervasive and impactful this behavior is in real life.

The experiment surveyed 59 participants, both male and female, aged 18 to 65. To encourage honesty and genuine responses, the survey included a variety of questions, some unrelated to an escalation of commitment, to make the experiment feel less targeted and more natural for participants.

1.?????? Waiting in Long Lines:

Participants were asked if they would stay in a long line that was taking longer than expected because they had already waited. The results showed that 66.1% chose to stay, while 33.9% opted to leave. This decision demonstrates escalation of commitment, where individuals continue to commit their time to a situation in hopes of eventual progress, rather than cutting their losses.

2.????? Wrong Turn While Driving:

Respondents were asked whether they would persist with a course of action they knew was incorrect, such as taking a wrong turn while driving, in the hope of justifying their initial choice. A striking 72.9% reported they would continue in the wrong direction, looking for an alternative route, rather than immediately turning back. This highlights the essence of escalation of commitment, as individuals often intensify their efforts in an initial decision to avoid admitting failure, even when corrective action is the more logical choice.

3.???? Stock Loss: In a question about investing, participants were asked if they would hold onto a stock that started losing value in hopes of a recovery. A significant 72.9% responded that they would hold on, while 27.1% said they would sell it. This result mirrors the escalation of commitment in financial decisions, where the sunk cost fallacy drives individuals to justify their initial investment, even in the face of continued losses.

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Key Takeaways

This experiment revealed how deeply the Escalation of Commitment shapes everyday decision-making. Individuals persist in unproductive actions due to:

• Cognitive Biases: Fear of regret, overconfidence, and a need for consistency.
• Emotional Investments: Reluctance to let go of prior efforts.

For businesses, this heuristic can lead to:

• Prolonging failing projects.
• Misallocating resources.
• Missing opportunities for innovation.

How to Break the Cycle

To mitigate the effects of Escalation of Commitment, consider these strategies:

1. Predefine Limits: Set clear thresholds for investments, time, or resources in advance.
2. Encourage Objectivity: Regularly review decisions with unbiased evaluations.
3. Normalize Learning from Failure: Create a culture where admitting mistakes is seen as growth, not weakness.
4. Seek External Perspectives: Involve third-party opinions to challenge entrenched thinking.

?The findings of this social experiment show how deeply escalating commitment pervades decision-making in everyday life, with important implications for understanding human behavior in both personal and professional contexts. The continuous trend of participants persevering in unproductive or unpleasant courses of action, such as waiting in lengthy lines, taking the wrong path, or holding onto losing investments, highlights the psychological obstacles that hinder people from disengaging from failed attempts. These behaviors are primarily motivated by cognitive biases such as the sunk cost fallacy and the desire to avoid acknowledging mistakes, which cause people to defend their previous commitments rather than make reasonable decisions based on current circumstances.

Such tendencies highlight the challenges of overcoming emotional and cognitive investments, even when evidence suggests a course change would be more beneficial. In business settings, these findings are particularly relevant as they point to the risks of doubling down on failing projects, unprofitable investments, or flawed strategies. Escalation of commitment can lead to the misallocation of resources, reduced organizational efficiency, and missed opportunities for innovation and growth. Recognizing and addressing this heuristic is essential for fostering adaptive decision-making and promoting a culture that values learning from failure.

This experiment, which included unrelated questions to encourage authenticity in responses, successfully demonstrated that the escalation of commitment is not only widespread but also manifests across a variety of scenarios. By bringing awareness to this pervasive bias, individuals and organizations can work towards developing strategies—such as setting predefined limits, encouraging objective evaluations, and fostering environments that reduce fear of failure—to mitigate its effects. In doing so, they can better navigate the complexities of decision-making, leading to improved outcomes in both daily life and the broader business world.

Have you ever caught yourself doubling down on a decision despite knowing it wasn’t the best course? Share your experiences or thoughts in the comments! Let’s spark a conversation on how we can make better decisions in both our personal and professional lives.