commitment-bias

Commitment Bias And Why It Matters In Business

Business / By / October 28, 2023

Commitment bias describes the tendency of an individual to remain committed to past behaviors – even if they result in undesirable outcomes. The bias is particularly pronounced when such behaviors are performed publicly. Commitment bias is also known as escalation of commitment.

AspectExplanation
DefinitionCommitment Bias, also known as Escalation of Commitment or Sunk Cost Fallacy, is a cognitive bias that occurs when individuals continue investing time, effort, or resources into a decision, project, or course of action despite evidence that it’s not delivering the expected results. This bias arises from a desire to justify past decisions and avoid admitting that previous investments were misguided or wasted. It can lead to suboptimal outcomes as individuals persist in unproductive or failing endeavors, driven by their initial commitment rather than objective evaluation. Understanding Commitment Bias is vital for making rational decisions and avoiding the trap of escalating commitment to a losing proposition.
Key Concepts– Sunk Costs: The central concept is the consideration of costs already incurred, which should not influence future decisions. – Escalation: The bias involves an escalation of commitment to a failing course of action. – Justification: People seek to justify past decisions by persisting in them. – Optimism Bias: Optimistic beliefs about the future success of the project contribute to this bias. – Avoiding Regret: Individuals often fear regretting the abandonment of an endeavor.
Characteristics– Continued Investment: Commitment Bias is characterized by continued investment in a failing project or decision. – Ignoring New Information: Individuals may ignore or downplay new information that contradicts their initial commitment. – Emotional Attachment: Emotional attachment to the initial decision plays a significant role. – Optimistic Outlook: Optimism about the future success of the endeavor is a common trait. – Avoiding Regret: People may persist to avoid regretting the abandonment of the project.
Implications– Suboptimal Outcomes: Commitment Bias can lead to suboptimal results due to the persistence in failing endeavors. – Resource Wastage: Continued investment in a failing project can waste resources. – Loss of Objectivity: The bias hinders objective decision-making by focusing on past commitments. – Escalation of Conflict: In interpersonal relationships or disputes, it can escalate conflicts unnecessarily. – Negative Psychological Impact: Persisting in failing decisions can lead to stress and anxiety.
Advantages– Persistence: Commitment Bias can foster persistence and determination in the face of challenges. – Learning Opportunities: It can provide opportunities to learn from mistakes and failures. – Goal Achievement: In some cases, persistence can lead to eventual success. – Sticking to Values: Commitment to values and principles can be a positive aspect. – Motivation: It can serve as a motivating factor to overcome obstacles.
Drawbacks– Suboptimal Outcomes: The primary drawback is the tendency to persist in failing endeavors. – Resource Wastage: Valuable resources can be wasted on futile projects. – Stress and Anxiety: Continuously investing in failing endeavors can lead to stress and anxiety. – Negative Impact on Others: Escalation of commitment can negatively affect others involved in the project. – Loss of Objectivity: Objectivity is compromised when past commitments dominate decision-making.
Applications– Business and Investments: Commitment Bias can affect business decisions, project management, and investment strategies. – Personal Relationships: It can impact personal relationships when individuals persist in toxic or unfulfilling relationships. – Sports and Athletics: Athletes may push through injuries due to commitment bias. – Career Decisions: It can influence career choices and job persistence. – Politics: In politics, individuals may continue to support a party or candidate despite evidence of poor performance.
Use Cases– Business Project: A company continues funding a failing project because of the resources already invested, despite evidence of its unviability. – Personal Relationship: An individual remains in a toxic relationship, justifying it based on the time and emotions already invested. – Athlete’s Decision: An athlete ignores an injury and continues to compete in a tournament, fearing the sunk cost of training and preparation. – Career Path: A person persists in a career they dislike because of the years they have spent pursuing it. – Political Support: A voter continues to support a political party even when it no longer aligns with their values, citing past allegiance.

Understanding commitment bias

In business, this may be exemplified by the continued investment of time or money into a project that is clearly going to fail.

Indeed, the failure of the project is often painfully obvious to outsiders and they see any attempt to save it as fruitless.

Commitment bias argues that the number of resources invested in a failing project is proportional to how much time, money, or energy has already been spent.

This somewhat irrational behavior is caused by an inability to accept or acknowledge failure.

But what causes commitment bias? There are several theories:

A desire for people to be judged positively by others

Many want to avoid being judged by others as an incompetent individual who makes poor choices.

This is also known as saving face.

Sunk-cost fallacy

sunk-cost-fallacy
The sunk cost fallacy describes a tendency to follow through on endeavors where time, money, or effort has already been invested. The sunk cost fallacy was first introduced by behavioral scientist Richard Thaler, who suggested in 1980 that “paying for the right to use a good or service will increase the rate at which the good will be utilised.” Psychologists Catherine Blumer and Hal Arkes expanded Thaler’s definition beyond monetary investment, defining the sunk cost fallacy as “a greater tendency to continue an endeavour once an investment in money, effort, or time has been made.”

When giving up on a project is seen as a waste of already invested resources, some individuals try to revive a failing project to see a return on investment.

In other words, the legitimacy or potential of the project itself is ignored.

Perceptions and emotional attachment

Those closest to a project – commonly those with the most invested – are sometimes so close that they develop tunnel vision.

A perceived emotional connection to a project causes them to devalue alternative projects or courses of action.

Common examples of commitment bias

Although commitment bias is traditionally associated with failing projects, it can also be seen in scenarios such as:

Poor investment decisions

Investors may continue to hold a depreciating stock if the capital invested makes up a large percentage of their portfolio.

Worse still, they may continue to invest in the stock in a vain attempt to justify their original decision.

Remaining in an unsuitable job

An employee occupying a role they dislike is less likely to resign if the job was hard to land.

They may also view resignation as a waste of a degree or other skills and experience.

Bidding wars

Businesses can become irrational and spend vast amounts of money at auction for the simple reason of not wanting their bidding effort to go to waste.

After a 10-week bidding war to acquire the parent company of department store Bloomingdale’s, Robert Campeau became victor after a bid of $6.58 billion.

But driven by irrational behavior and a win-at-all-costs mentality, the grossly excessive bid caused Campeau to declare bankruptcy soon after.

Key takeaways

  • Commitment bias is a tendency for individuals or businesses to remain committed to past behavior, particularly if that behavior is displayed publicly.
  • The degree of commitment bias is proportional to the amount of time, energy, or money invested. It is caused by the need the feel validated by others and the sunk-cost fallacy. Emotional attachment to project outcomes is also a major contributing factor.
  • Commitment bias causes poor investment decisions and results in employees remaining in unsatisfactory positions. The irrational behavior that exemplifies commitment has also been seen in takeover bidding wars.

Commitment Bias Highlights:

  • Definition of Commitment Bias: Commitment bias, also known as escalation of commitment, refers to the tendency for individuals or organizations to persist in their commitment to past actions, even when those actions result in negative outcomes.
  • Observable in Failing Projects: Commitment bias is often evident in scenarios where resources like time, money, or effort have been invested in a failing project. Instead of recognizing the failure and cutting losses, individuals may continue investing in hopes of turning things around.
  • Factors Behind Commitment Bias:
    • Desire for Positive Judgment: People often want to be seen as competent decision-makers and may avoid admitting mistakes to save face.
    • Sunk-Cost Fallacy: Individuals may continue with a failing endeavor due to the sunk-cost fallacy, which leads them to consider the resources already invested and not the project’s potential.
    • Perceptions and Emotional Attachment: Emotional attachment to a project, combined with tunnel vision, can lead to a disregard for alternatives.
  • Examples of Commitment Bias:
    • Poor Investment Decisions: Investors may hold onto depreciating assets due to the fear of losing out on their initial investment.
    • Remaining in Unsuitable Jobs: Employees might stay in jobs they dislike because of the effort it took to secure the position and a reluctance to waste their skills.
    • Bidding Wars: Businesses can engage in irrational bidding wars to avoid the feeling that their bidding efforts were in vain, leading to excessive spending.

Connected Thinking Frameworks

Convergent vs. Divergent Thinking

convergent-vs-divergent-thinking
Convergent thinking occurs when the solution to a problem can be found by applying established rules and logical reasoning. Whereas divergent thinking is an unstructured problem-solving method where participants are encouraged to develop many innovative ideas or solutions to a given problem. Where convergent thinking might work for larger, mature organizations where divergent thinking is more suited for startups and innovative companies.

Critical Thinking

critical-thinking
Critical thinking involves analyzing observations, facts, evidence, and arguments to form a judgment about what someone reads, hears, says, or writes.

Biases

biases
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.

Second-Order Thinking

second-order-thinking
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.

Lateral Thinking

lateral-thinking
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.

Bounded Rationality

bounded-rationality
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.

Dunning-Kruger Effect

dunning-kruger-effect
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.

Occam’s Razor

occams-razor
Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.

Lindy Effect

lindy-effect
The Lindy Effect is a theory about the ageing of non-perishable things, like technology or ideas. Popularized by author Nicholas Nassim Taleb, the Lindy Effect states that non-perishable things like technology age – linearly – in reverse. Therefore, the older an idea or a technology, the same will be its life expectancy.

Antifragility

antifragility
Antifragility was first coined as a term by author, and options trader Nassim Nicholas Taleb. Antifragility is a characteristic of systems that thrive as a result of stressors, volatility, and randomness. Therefore, Antifragile is the opposite of fragile. Where a fragile thing breaks up to volatility; a robust thing resists volatility. An antifragile thing gets stronger from volatility (provided the level of stressors and randomness doesn’t pass a certain threshold).

Systems Thinking

systems-thinking
Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. It is about thinking non-linearly, and understanding the second-order consequences of actions and input into the system.

Vertical Thinking

vertical-thinking
Vertical thinking, on the other hand, is a problem-solving approach that favors a selective, analytical, structured, and sequential mindset. The focus of vertical thinking is to arrive at a reasoned, defined solution.

Maslow’s Hammer

einstellung-effect
Maslow’s Hammer, otherwise known as the law of the instrument or the Einstellung effect, is a cognitive bias causing an over-reliance on a familiar tool. This can be expressed as the tendency to overuse a known tool (perhaps a hammer) to solve issues that might require a different tool. This problem is persistent in the business world where perhaps known tools or frameworks might be used in the wrong context (like business plans used as planning tools instead of only investors’ pitches).

Peter Principle

peter-principle
The Peter Principle was first described by Canadian sociologist Lawrence J. Peter in his 1969 book The Peter Principle. The Peter Principle states that people are continually promoted within an organization until they reach their level of incompetence.

Straw Man Fallacy

straw-man-fallacy
The straw man fallacy describes an argument that misrepresents an opponent’s stance to make rebuttal more convenient. The straw man fallacy is a type of informal logical fallacy, defined as a flaw in the structure of an argument that renders it invalid.

Streisand Effect

streisand-effect
The Streisand Effect is a paradoxical phenomenon where the act of suppressing information to reduce visibility causes it to become more visible. In 2003, Streisand attempted to suppress aerial photographs of her Californian home by suing photographer Kenneth Adelman for an invasion of privacy. Adelman, who Streisand assumed was paparazzi, was instead taking photographs to document and study coastal erosion. In her quest for more privacy, Streisand’s efforts had the opposite effect.

Heuristic

heuristic
As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.

Recognition Heuristic

recognition-heuristic
The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.

Representativeness Heuristic

representativeness-heuristic
The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.

Take-The-Best Heuristic

take-the-best-heuristic
The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.

Bundling Bias

bundling-bias
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.

Barnum Effect

barnum-effect
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.

First-Principles Thinking

first-principles-thinking
First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.

Ladder Of Inference

ladder-of-inference
The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.

Goodhart’s Law

goodharts-law
Goodhart’s Law is named after British monetary policy theorist and economist Charles Goodhart. Speaking at a conference in Sydney in 1975, Goodhart said that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” Goodhart’s Law states that when a measure becomes a target, it ceases to be a good measure.

Six Thinking Hats Model

six-thinking-hats-model
The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.

Mandela Effect

mandela-effect
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.

Crowding-Out Effect

crowding-out-effect
The crowding-out effect occurs when public sector spending reduces spending in the private sector.

Bandwagon Effect

bandwagon-effect
The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What in marketing can be associated with social proof.

Moore’s Law

moores-law
Moore’s law states that the number of transistors on a microchip doubles approximately every two years. This observation was made by Intel co-founder Gordon Moore in 1965 and it become a guiding principle for the semiconductor industry and has had far-reaching implications for technology as a whole.

Disruptive Innovation

disruptive-innovation
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.

Value Migration

value-migration
Value migration was first described by author Adrian Slywotzky in his 1996 book Value Migration – How to Think Several Moves Ahead of the Competition. Value migration is the transferal of value-creating forces from outdated business models to something better able to satisfy consumer demands.

Bye-Now Effect

bye-now-effect
The bye-now effect describes the tendency for consumers to think of the word “buy” when they read the word “bye”. In a study that tracked diners at a name-your-own-price restaurant, each diner was asked to read one of two phrases before ordering their meal. The first phrase, “so long”, resulted in diners paying an average of $32 per meal. But when diners recited the phrase “bye bye” before ordering, the average price per meal rose to $45.

Groupthink

groupthink
Groupthink occurs when well-intentioned individuals make non-optimal or irrational decisions based on a belief that dissent is impossible or on a motivation to conform. Groupthink occurs when members of a group reach a consensus without critical reasoning or evaluation of the alternatives and their consequences.

Stereotyping

stereotyping
A stereotype is a fixed and over-generalized belief about a particular group or class of people. These beliefs are based on the false assumption that certain characteristics are common to every individual residing in that group. Many stereotypes have a long and sometimes controversial history and are a direct consequence of various political, social, or economic events. Stereotyping is the process of making assumptions about a person or group of people based on various attributes, including gender, race, religion, or physical traits.

Murphy’s Law

murphys-law
Murphy’s Law states that if anything can go wrong, it will go wrong. Murphy’s Law was named after aerospace engineer Edward A. Murphy. During his time working at Edwards Air Force Base in 1949, Murphy cursed a technician who had improperly wired an electrical component and said, “If there is any way to do it wrong, he’ll find it.”

Law of Unintended Consequences

law-of-unintended-consequences
The law of unintended consequences was first mentioned by British philosopher John Locke when writing to parliament about the unintended effects of interest rate rises. However, it was popularized in 1936 by American sociologist Robert K. Merton who looked at unexpected, unanticipated, and unintended consequences and their impact on society.

Fundamental Attribution Error

fundamental-attribution-error
Fundamental attribution error is a bias people display when judging the behavior of others. The tendency is to over-emphasize personal characteristics and under-emphasize environmental and situational factors.

Outcome Bias

outcome-bias
Outcome bias describes a tendency to evaluate a decision based on its outcome and not on the process by which the decision was reached. In other words, the quality of a decision is only determined once the outcome is known. Outcome bias occurs when a decision is based on the outcome of previous events without regard for how those events developed.

Hindsight Bias

hindsight-bias
Hindsight bias is the tendency for people to perceive past events as more predictable than they actually were. The result of a presidential election, for example, seems more obvious when the winner is announced. The same can also be said for the avid sports fan who predicted the correct outcome of a match regardless of whether their team won or lost. Hindsight bias, therefore, is the tendency for an individual to convince themselves that they accurately predicted an event before it happened.

Read Next: Biases, Bounded Rationality, Mandela Effect, Dunning-Kruger Effect, Lindy Effect, Crowding Out Effect, Bandwagon Effect.

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About The Author

Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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