The Influence of Probability Discounting on Escalation in Information Technology Projects

Abstract

An experimental study was conducted with 17 experienced information technology (IT) project decision-makers. Each participated in a computer based simulation where they had to choose whether to continue an ongoing IT project despite negative feedback, (called escalation of commitment), or abandon it and sell the project as is. A titration procedure for sales price was manipulated over seven probability conditions for success of the project. The switching points where each participant would choose to sell the project instead of continuing development was determined, and probability discounting factors were calculated. The median switching point of the participant's subjective values of the project fit a hyperbolic discounting function well. An escalation factor was calculated and the results indicate that several participants in the study showed signs of escalation. These data demonstrate that the discounting framework may be a viable approach to understand the phenomenon of escalation in IT projects.