Stuck in the Past: Why Managers Persist with New Product Failures

Abstract

In this research, the authors examine the phenomenon of escalation bias in the context of managing new product introductions. In particular, they identify three general paths—Decision Involvement Inertia, Decision Involvement Distortion, and Belief Inertia Distortion—that can lead managers to escalate their commitments. The authors test the relative strength of these paths in driving observed escalation behavior. The results show that involvement with the initial decision, a key construct in numerous explanations for escalation behavior (e.g., agency theory, self-justification), is not a necessary condition to induce commitment to a losing course of action (i.e., escalation bias). Rather, the authors find that the driving force behind escalation behavior is improper use of initial positive beliefs in the face of negative new information. This insight has implications for the groundwork necessary for organizations to design systems, policies, and procedures to help them avoid the trap of escalation bias that is often associated with major strategic decisions.