BazermanMoore

reasons. The first three classes of explanations—perceptual biases, judgmental biases,
and impression management—are general to all of the examples of escalation presented.
The fourth class of explanations, competitive irrationality, differentiates the
unilateral escalation paradigm from the competitive escalation paradigm. After presenting
each class of explanations for this phenomenon, we consider the implications for the
elimination of escalation.
Perceptual Biases
Consider the case at the beginning of this chapter, in which you made the decision to
hire the employee who subsequently performed below your expectations. Evidence
from earlier in this chapter suggests that your perception of the employee’s performance
may be biased by your initial decision. That is, you may notice information that
supports your hiring decision, while ignoring information that contradicts your initial
decision. Similarly, in the start-up venture case, after making the initial investment decision,
you may have a greater tendency to notice positive information about the startup
than negative information about it.
This phenomenon can be predicted by the common tendency, discussed in Chapter
2, to pay more attention to confirming than disconfirming information. Similarly,
Staw (1980) suggests that administrators often protect their initial decisions by actively
seeking out information that supports these decisions—for example, information that
suggests an employee is performing well. Caldwell and O’Reilly (1982) empirically
show that participants who freely choose a particular course of action will then filter
information selectively to maintain commitment to that course of action.
The perceptual biases that result from our commitment to a particular course of
action suggest a number of corrective procedures. As recommended in Chapter 2,
when we are making a decision, we need to search vigilantly for disconfirming information
that balances out the confirming information that we intuitively seek. This need is
particularly pronounced in serial decisions, where we have a natural tendency toward
escalation. In addition, establishing monitoring systems that help us check our perception
before making subsequent judgments or decisions could prove useful. For instance,
if an objective outsider could evaluate our openness to disconfirming information,
our perceptual barrier to nonescalatory behavior could be reduced or eliminated.
Judgmental Biases
Why Does Escalation Occur? 109
Once we have filtered the information that we will use to make a subsequent decision,
we still have to make the decision. The central argument of this section is that any loss
from an initial investment (such as bidding more than $20 in the competitive escalation
paradigm, or more than the initial research-and-development funding in Staw’s unilateral
escalation paradigm) will systematically distort judgment toward continuing the
previously selected course of action. The logic of this prediction lies in the framing concepts
developed in Chapter 4. As you will recall, individuals tend to be risk averse to
positively framed problems and risk seeking in negatively framed problems.
In 1995, Nick Leeson showed the dramatic consequences that can result from escalation
of commitment to avoid losses. Leeson was an up-and-coming young manager