Escalation: The Role of Problem Recognition and Cognitive Bias

Escalation of commitment to a failing course of action is an enduring problem that remains central to the study of managerial behavior. Prior research suggests that escalation behavior results when decision makers choose to ignore negative feedback concerning the viability of a previously chosen course of action. Previous work has also suggested that certain cognitive biases might promote escalation behavior, but there has been little attempt to explore how biases other than framing affect escalation. In this article, we explore the extent to which decision makers actually perceive negative feedback as indicative of a problem and how this influences their decision to escalate. Although problem recognition and cognitive biases have been intensively studied individually, little is known about their effect on escalation behavior. In this research, we construct and test an escalation decision model that incorporates both problem recognition and two cognitive biases: selective perception and illusion of control. Our results revealed a significant inverse relationship between problem recognition and escalation. Furthermore, selective perception and illusion of control were found to significantly affect both problem recognition and escalation. The implications of these findings for research and practice are discussed. To improve problem recognition and reduce the incidence of escalation, practicing managers should implement modern project management practices that can help to identify and highlight potential problems while guarding against these two key cognitive biases that promote the behavior.     

Is Small Always Beautiful? A Dialogue

For quite a few years the two authors have been engaging in dialogues about management issues. Using as a model Plato's dialogues between Socrates and his various students, we have tried to clarify the nature of a concept by asking questions and thinking carefully about the answers. We disagree about many things, but agree that we respect each other's opinions, and can clarify our own viewpoints by debating them respectfully with another. For this dialogue, we decided to focus on the question of the scale of business operations. One of us has a particular preference for small scale enterprise, and for the localisation of the economy, because he believes that the giganticism of corporations is behind many of the problems we face today. As you will see, the other protagonist disagrees, arguing instead that other issues than scale are at the root of why some businesses do bad things.     

EXPONENTIAL DISPERSION MODELS AND THE GAUSS-NEWTON ALGORITHM

It is known that the Fisher scoring iteration for generalized linear models has the same form as the Gauss-Newton algorithm for normal regression. This note shows that exponential dispersion models are the most general families to preserve this form for the scoring iteration. Therefore exponential dispersion models are the most general extension of generalized linear models for which the analogy with normal regression is preserved. The multinomial distribution is used as an example.     

Inequality at work: Race,sex and underemployment

New indicators of underemployment are presented for whites, blacks, Mexican Americans and Puerto Ricans by sex. The indicators are based on hours worked, education, skill utilization, and pay. Data from the 1980 Current Population Survey are supplemented with Dictionary of Occupational Titles information to construct the indicators. Whites consistently have the lowest underemployment, and comparison across groups reveals the different types of employment problems faced by minorities and women. These indicators of underemployment are compared with those from a different conceptual approach (the Labor Utilization Framework) using the same survey data. The advantages of the new indicators are discussed.