Escalation of commitment occurs because of psychological factors such as perceptual and judgemental biases, as well as impression management.
Escalation can occur in bid auctions where many sellers compete with one another to offer the highest or lowest price to the buyer.
We escalate commitment because of our own previous decisions. How should be separate between rational and non-rational tendency to escalate?
Many managerial decisions concern a series of choices rather than isolated decisions. We are prone to bias when approaching decisions serially.
People place higher value on one option compared to a several options when looking at them individually. Individuals reverse their preferences.
Most people value what they own than the value of the same good that they do not own. Home sellers think their houses are worth more than most buyers do.
People have a variety of “mental” accounts that they use to organise, evaluate and keep track of a variety of financial activities such as monthly budget.
When buying a car, we purchase warranty. Vividness of repair, social norm favouring insurance and warranties leads consumers to make risk averse choices.