BazermanMoore

The Unilateral Escalation Paradigm 103
consider all alternative courses of action by evaluating only the future costs and benefits
associated with each alternative. For example, if you are considering whether to quit a
doctoral program, it is irrelevant whether it took you six months or four years to get to
the point you are at now; the key decision involves the future costs and benefits of exiting
versus the future costs and benefits of continuing.
Accounting professors teach their students to recognize sunk costs in accounting
contexts, yet the decisions of managers trained in accounting suggest that the textbook
advice to ignore sunk costs seldom translates into wise solutions to real-world problems.
Why is it so hard for managers to truly absorb the sunk-cost concept? In part, because
the typical training of the concept lacks a descriptive identification of the reasons that
we intuitively tend to include sunk costs in our calculations. To eliminate escalatory
behavior from our repertoire, we need to identify the existing nonrational behavior
within ourselves, ‘‘unfreeze’’ that behavior, and prepare for change.
Decision makers who commit themselves to a particular course of action have a
tendency to make subsequent decisions that continue that commitment beyond the
level suggested by rationality. As a consequence, they often allocate resources in a way
that justifies previous commitments, whether or not those initial commitments now appear
valid. The following section examines the components of this behavior in more
detail.
THE UNILATERAL ESCALATION PARADIGM
Put yourself in the equity firm officer’s predicament again. Our description of the escalation
situation has probably biased you to assume that it would be ‘‘bad’’ for you to
escalate your commitment to the first investment by granting another one. The fact is,
it might be economically rational to continue your investment in the start-up. After all,
it is not always wise to quit at the first sign of failure. Many would argue that doing so is
a sign of a serious psychological deficiency.
How do you separate the rational from the nonrational tendency to escalate? One
body of knowledge suggests that you should try to determine the rational course of
action, ignoring the fact that you personally made the initial monetary commitment. A
number of studies have attempted to separate the effect of being the person who made
the initial commitment from a later decision. Specifically, these studies have investigated
the difference between how two groups of decision makers make a second decision
that follows an initial failure. One group has already made the initial decision,
while the other group inherits the initial decision.
In Staw’s initial study of this type (1976), one group of participants (labeled the
‘‘high-responsibility participants’’) was asked to allocate research-and-development
funds to one of two operating divisions of an organization. The participants were
then told that, after three years, the investment had proven either successful or unsuccessful
and that they were now faced with a second allocation decision concerning
the same division. A second group (labeled the ‘‘low-responsibility participants’’)
was told that another financial officer of the firm had made a decision that had been
either successful or unsuccessful (the same content information about success or