Escalation of Commitment. Cognitive Escalation Factors and Counteraction through Behavioural Controlling

Table of Contents

1 Introduction

1.1 Escalation of commitment as a problem of rationality assurance

1.2 Objective and approach of the thesis

2 Controlling, rationality and human behaviour: Theoretical foundations

2.1 Introduction to rationality in the company context

2.2 Rationality assurance and behavioural orientation in controlling

2.3 Human rational behaviour in theory

3 Escalation of commitment and cognitive biases as escalation factors

3.1 The escalation of commitment phenomenon

3.2 Cognitive biases as escalation factors

3.2.1 Cognitive biases as unconscious decision influences

3.2.2 Self-justification

3.2.3 Prospect theory and decision framing

3.2.4 Sunk cost effect and mental accounting

3.2.5 Optimism bias, overconfidence, and illusion of control

3.2.6 Confirmation and perception biases

4 Counteraction through behavioural controlling

4.1 Counteracting rationality-restricting escalation factors

4.2 Controlling-guided decision-making processes

4.3 Adapting the decision environment: Decision-making in groups

4.4 Changing the decision environment: Management reporting

5 Limitations

6 Conclusion

Research Objectives and Thematic Focus

This thesis investigates how "Escalation of Commitment" (EoC) impacts corporate controlling and argues for the necessity of a behavioural orientation to ensure managerial rationality. It seeks to identify the psychological triggers of irrational project persistence and evaluate effective countermeasures that controllers can implement to mitigate these cognitive biases.

• Theoretical foundations of rationality in a corporate context.
• Psychological triggers and cognitive biases (e.g., self-justification, prospect theory).
• Preventive and curative strategies for behavioural controlling.
• Analysis of group decision-making dynamics and management reporting.

Excerpt from the Thesis

Summary of Chapters

1 Introduction: Introduces the phenomenon of escalation of commitment and defines the objective and approach of the thesis.

2 Controlling, rationality and human behaviour: Theoretical foundations: Provides the theoretical background regarding rationality in companies, the role of controlling, and human decision-making behaviour.

3 Escalation of commitment and cognitive biases as escalation factors: Defines the escalation phenomenon and details various cognitive biases that lead to irrational decision-making.

4 Counteraction through behavioural controlling: Discusses practical measures for controlling, including process guidance, group adaptation, and reporting adjustments to counteract escalation.

5 Limitations: Reflects on the scope of the study, the reliance on laboratory-based research, and identifies areas for future exploration.

6 Conclusion: Summarizes the key findings, confirming the importance of behavioral orientation in controlling to ensure corporate rationality.

Keywords

Escalation of Commitment, Behavioural Controlling, Rationality Assurance, Cognitive Biases, Self-Justification, Prospect Theory, Sunk Cost Effect, Mental Accounting, Decision Framing, Debiasing, Management Reporting, Rationality Deficit, Procedural Rationality, Investment Projects, Corporate Governance

Frequently Asked Questions

What is the core subject of this thesis?

The thesis explores the phenomenon of "Escalation of Commitment" (EoC) in a corporate setting, where managers continue investing in failing projects despite negative results.

What are the primary themes discussed?

The main themes include the definition of rationality, the identification of cognitive biases (such as self-justification and loss aversion), and the development of behavioral controlling techniques to mitigate irrational decisions.

What is the main objective of the research?

The objective is to demonstrate that traditional, information-based controlling is insufficient and that a behavioral approach is required to identify and counteract irrational escalation tendencies.

Which scientific methods are employed?

The work utilizes a literature-based approach, analyzing existing empirical studies, psychological models (such as the Administrative Man and REMM), and laboratory-based experiments to derive practical management implications.

What does the main body cover?

The main body focuses on theoretical foundations of rationality, a detailed breakdown of specific cognitive escalation factors, and an evaluation of concrete counter-measures like group decision-making and improved reporting.

What are the key terms characterizing the work?

Key terms include Escalation of Commitment, Rationality Assurance, Cognitive Biases, Debiasing, and Behavioural Controlling.

How does "self-justification" contribute to escalation?

Self-justification stems from the manager's unconscious urge to protect their competence and reputation, leading them to rationalize past bad decisions by continuing to invest in them.

What role does the "Prospect Theory" play in project continuation?

Prospect Theory explains that in a "loss" frame, decision-makers become risk-seeking to avoid certain losses, often leading to continued, irrational investment rather than accepting defeat.

Why might group decision-making not always be a solution to escalation?

While group diversity can help, the thesis notes that phenomena like "Groupthink" or "group polarization" can sometimes reinforce and amplify an individual's tendency to escalate commitment.