Commitment Bias And Why It Matters In Business

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.

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:

  1. 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.
  2. Sunk-cost fallacy. 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.
  3. 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.

Read Next: Bounded RationalityHeuristicsBiases.

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