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Introduction引言
当决策的结果开始失去控制的时候，决策者应该决定是停止还是继续，当组织开始跑错了方向的时候，人们需要了解的是企业如何停止运作。企业的改革是企业得以持久运营的行动方针，行动的错误造成的问题往往是遥远的。
It is necessary for decision-makers decide whether to quite or continue while decision results turn into out of control. When organization began run to wrong direction, people understand fewer on how to stop drift than realize how to improve the enterprise (Drummond, 1996). Escalation refers to persistence with a course of action beyond an economically defensible point (Armstrong et al, 1993) and persistence could be self-defeating while action makes trouble too far away from the point (Staw and Ross, 1987). The features of escalation of commitment stated as below. Firstly, the previous investment translated into sunk cost and withdrawal impossibility. Secondly, decision-makers possessed options to whether continue invest on the project, which has been in trouble and the project with uncertain prospects. Thirdly, people need to consider together with a serious of relative items when making investment decision. Britain’s High Speed2 (HS2) project plans build superfast railway to connect London with three largest conurbations, Birmingham, Leeds and Manchester by 2033, however, increasing of people suspected government of the project (John Kay, August 2013). This assignment will describe the dangers of escalation of commitment and suggest measures the government can take to avoid becoming caught up in an escalation spiral.
2 Psychological of causes of escalation升级的原因
2.1 Ego-defensiveness—the Confidence Trap自我 - 防御 - 置信陷阱
信心陷阱理论主要表现为沙坑心态的决策者忽略错误的迹象，然后分离承诺远离现实。心理学家称，人们估计在成功的倾向拥有与生俱来的能力 （雪莉·泰勒，1980）。事实上，置信陷阱主要表现在两方面。一方面，害怕失败。决策者获得成功如此强烈的感受是无法接受失败和指责。在另一方面，害怕成功。人们能够在第一次成功后，得到很多的期望和支持。然而，运气和机遇被视为在决策者心目中的成功关键原因，那么，人们怀疑，如果他们获得的能力的成功。
The confidence trap theoretically mainly represented as bunker mentality that the decision-makers ignore mistaken signs then separated commitment away from reality. Psychologist claimed that people in tendency estimated success to own innate abilities and failure to bad luck and faults made by others. (Shelly Taylor,1980). In fact, the confidence trap mainly performed on two ways. On one hand, fear to the failure. Decision-makers obtain so strong feelings for success that unable to accept failure and blame. On the other hand, fear to the success. People are able to get lots of expectation and support after the first success. However, the luck and opportunities are regarded the key success reasons in decision-makers mind, then, people doubted about if they acquired the ability to success.
In conclusion, as the result of confidence trap, people feared of failure and success and turned to be defenceless and reasonless on account of risk seeking. It is necessary for decision-makers to appear rational and believed in themselves to be right all the time.
2.2 Sunk Cost—Expected return on investment 投资沉没成本的预期回报
Staw research (1976) resulted that people seldom develop additional investment again except initial decision failed and initial decision displayed inconsistently with negative feedback. It is necessary for decision-makers to consider the wisdom time and money on resources investment when negative feedback appeared on financial statement( Northcraft,G.and Wolf,G,1984). Escalation literature is known as ‘sunk cost ’effect, it thought that people invested more in a venture then the more they prefer to persist with it (Arkes and Blumer). Sunk costs relative to investments made in anticipation of benefits (Drummond,1996).People respond to sunk cost rationally to create a reputation for commitment(McAfee,R.p.,Mailon,H.M, and Mialon,S.H.,2010).Wastefulness occurred when resources utilized careless, items cost more than necessary and purchased item with inadequate use (Arkes,H.R,1996). Social-psychological theories pursue to their logical conclusion and indefinite persistence though resources are finite. Resources are finite indicated that as funds confirmed, it becomes very difficult to change venture capital to gain higher return on investment (Gist and Mitchell,1992). The life cycle model of resource allocation decision views that resource commitment decisions according to compare future revenues and future costs ( Northcraft,G, and Wolf,G ,1984). A good way to avoid the appearance of wastefulness is to the goal of efficient utility maximize achievement and decision-makers compromise their own interest ( Arkes,H.R,1996). Withdrawal took place when social and psychological are sharply overridden by the costs of persistence, also, occurred when they pressures weaken (Drummond,1996). Decision dilemma theorists suggest that withdrawal became easier with time. Literature further assumes that loss is experienced as failure and disappointment, especially, venture capitalists and commodities traders. Prospective reward, proximity of reward and costs of withdrawal need to be considered, and particularly applies to so-called ‘long-haul’ project (Northcraft and Wolfe,1984).
In conclusion, People reluctance to let go of sunk costs even though those costs cannot change what happens in the future. Decision-makers will try to achieve expected return through resources withdrawal and disliked of waste to overcome the influence of sunk cost.
2.3 Framing Effect—Risk Seeking and Avoid Risk框架效应风险寻找和避免风险
Framing effect occurs when equivalent descriptions of a decision problem lead to systematically different decisions (Kahneman and Tversky, 1981). Prospect theory developed the theory by selecting a reference point the target as representative standard for lost and income( Whyte,1986). Under the uncertain environment, people usually obtain two kinds of logical thinking. On one side, people chose the risk averse while faced with benefits. On the other side, when faced with losing, people prefer the risk appetite. Risk averse presented that people avoid risk through two ways in general, taking protect activities in advance and remedy actions after the event. Risk appetite defined as ability and quality that enterprise could be received.
In conclusion, when problems are framed as a choice between losses decision-makers may become risk-seeking. Based on the prospect theory, people could find the standard point distinguish income and lost. To be risk seeking when people get lost, then prefer to avoid a smaller but definite loss now, however, at the risk of subsequently incurring a much greater loss. To be risk averse, decision-makers get profits and prefer to develop away from the risk.
3 Social causes of escalation—Competition, the’ dollar auction’ 社会原因
In the beginning of the game, people need to invest a few then most are attracted to join at first . However, with improvement of the auction price, it turned to be difficult to exit and the only way have to increase investment . As the result, the one dollar sold by much more than one dollar. The game apparently encouraged decision-makers spend less value to gain larger benefits, in fact, people need to pay much more to win. Teger(1980) survey resulted that competition intensified the process of escalation, and the urge to win the competition motivated escalation of commitment( Bazerman,M.H., 2009). Economic causes of escalation
Escalation of commitment occurs when organization obtain committed resources to a project. There are some evidence of suboptimal escalation. At first, the tendency of banks to write off bad loans is correlated with managerial turnover (Staw et al., 1997). Because of low salvage value and costs of ripping out works, organization have to pay more to quit. At second, employees’ performance evaluations by supervisors were affected by whether the supervisors had hired the employees originally or not (Schoorman, 1988). Enterprise managers are forced to pay the other party’s legal costs and have to add penalty payments to sub-contractors. At third, entrepreneurs who started their own businesses invested more than those who bought businesses from others (McCarthy et al., 1993). Because of redundancy costs and possible reputational costs of quitting, it became more expensive for organization drop out the project.
4 Organizational causes of escalation—Project, similarity value and purpose升级，项目的组织原因，相似的价值和目的
Project closely identified with value and purpose of organization. Risk of escalation is greater when the implications of a decision are not perceived at the outset (Teger,1980). Escalation is thought more probable when players are operating at the boundaries of knowledge (Bowenet al,1987). According to decreased sense of responsibility for an unsuccessful investment, groups escalation the same as individual and support to ‘gung-ho’ attitude to risk taking (Bazerman et al, 1984). Groups act the same as individual that escalate their investments when they are responsibility for an unsuccessful decision (Bazerman et al,1984). Besides, group membership encouraged people regard as a unit and project gains momentum whole departments to create benefits and success. Thus, project closely identified with values and purposes of organization.#p#分页标题#e#
5 Recommendation and suggestion推荐和建议
There are some critical views on HS2 project as below.
At first, the project cost was claimed about £33billion, but experts research suggested the project would expend over £70billion in the end (Stephen Robinson, September 2013). It is not worth for British spending £40 on superfast railway, which other European countries obtained many high-speed connections and British possess better train services (Stephen Robinson, September 2013).
Analyses from the confidence trap. Some realities about recent environment are ignored. In instance, British still suffered from the economic crisis and investment on HS2 will produce large pressure on budget. As the result, taxpayers feel dissatisfied with government. At second, government eager to get support in public and the project seems exactly a way to spread influence and develop political policy in success. However, many high-speed lines exist in other European countries already and British still suffered from the economic crisis and not recovered yet. In fact, some suggestions for government as blew. At first, it is necessary for departments to gather information and data with exactly and widely. At second, analyses of information and data need work with rational attitude. Analysis from the organization causes of escalation that the basic value and purpose for government is to gain support and spread influence in public. Besides, generation display as the main role of taxpayer, it is necessary for government to try to find and keep the balance between organization value with individual.
At second, because of HS2, large amounts of people and packages would transfer in Heathrow airport, as the result, the airdrome under great traffic pressure and turn to be more congestion (John Kay, August 2013). Analyses based on the economic causes of escalation. Though HS2 project convenient plenty of visitors, however, it will bring a large of pressure for the transfer station. As the result, government has to not only invest on the project, but also need make penalty payments to sub-contractors. At the same time, central government is forced to pay the local departments’ legal costs for high-speed train maintenance.
At third, demand for railway in the further is uncertain. For example, the rail demand increased with double during the next twenty-five years and lots of strategies seems more flexible.(John Kay,August2013). Compared with building a new high-speed line, running of longer trains, advanced yield management utilization and the existing lines’ product capability development seem more helpful (John Kay, August 2013). According to the sunk cost theory and framing effect, there are some recommendations and suggestions as below. Though the future demands for HS2 project existed uncertainly. It is still necessary for government to devote some resources and capital on the project in advance. Thus, government will be faced with some risks. Based on the framing effect, there are two ways for departments. Firstly, to avoid the risk, government could stop to continue the project and keep the exist benefits. Secondly, regardless with negative feedback of HS2 project, government could accept already lost with risk seeking.
Conclusion结论
Decision-makers choose to quit a project or not depend on the escalation and there are four causes of escalation, as psychological, social, economic and organizational. For psychological causes, confidence trap leads decision-makers feel fear of success. The more sunk cost occurred, the more difficult for decision-makers to quit. As frame effect, people either choose to avoid risk with a few profits gained, or prefer at the risk of lost to gain more benefits. Competition involved in social causes, in order to win competition, decision-makers turn to be deeper entrapment. Penalty payments to sub-contractors, costs of ripping out work and people are forced to pay the other party’s legal costs involved in economic causes, as the result, decision-makers have to increase investment then more escalation of commitment. Organization causes present that project identified with similarity value and purpose and it is difficult for decision-makers to quit as project develop closely connection.
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