BazermanMoore

Why Does Escalation Occur? 111
In his book Profiles in Courage, John F. Kennedy (1956) wrote that the most courageous
decisions that politicians must make are those favoring an action that they believe
to be in the best interests of their constituency, yet that they know will be disfavored by
that very same constituency. Staw and Ross’s (1980) findings suggest that this conflict is
particularly severe when an action consists of turning one’s back on a previously supported
course of action.
An interesting paradox results: Making the best decision for your organization
means that you should focus on future costs and benefits, ignoring any previous commitments.
Yet empirical evidence shows that you are more likely to be rewarded for
escalating commitment than for changing course (Ross & Staw, 1986). From an organizational
standpoint, this suggests that we need to replace systems that encourage impression
management with those that reward good decisions. To do this, managers
must convey to all members of the organization that impression management at the
expense of high-quality decisions will not be tolerated. Second, organizations should
strive to match employees’ values to those of the organization by modifying reward systems.
An organization wants managers to make smart organizational decisions; managers
want to make decisions that will further their careers. When rewards are based on
results, employees will hide bad results by escalating commitment to their initial decisions.
When management determines rewards by looking at the decision process, not
the outcome, employees will be motivated to make the best possible decisions at different
stages, whether or not their initial decisions have been judged to be correct (Staw &
Ross, 1987).
Competitive lrrationality
The previous three explanations for escalation can be generalized to both the unilateral
and the competitive paradigms. Research on competitive irrationality, however, adds
an additional insight that distinguishes between the two paradigms. Specifically, competitive
irrationality refers to a situation in which two parties engage in an activity that
is clearly irrational in terms of the expected outcomes to both sides, despite the fact that
it is difficult to identify specific irrational actions by either party.
Many people would argue that getting involved in the dollar auction is an irrational
decision. While this is a very reasonable perspective, the argument is not completely
valid. If it makes sense for you not to play, then it does not make sense for anyone else
to play. If no one else plays, then one person can bid a small amount and get a bargain.
This reasoning sounds logical, but it depends on a strong assumption: that everyone else
will have reasoned through the problem and will decide to stay out. If this assumption
does not hold—and it has never held in the hundreds of times we have played this game
in our classes—then you find yourself as the second bidder, stuck in an escalation trap.
We argued earlier that continuing to bid then depends on your estimation of the
likelihood that the other party will quit. Obviously, the same reasoning applies to the
other party. If it is possible for someone to get $20 cheaply (for $1, for example), then
it must be rational for one individual to be able to bid. Thus, in many ways, competitive
irrationality presents an unresolved paradox rather than an explanation of escalation.
The main recommendation offered by research on escalation and competitive