Why we pour more resources into projects destined for failure
In short: When a project starts to fail, our instinct is often to double down rather than walk away. This psychological trap, known as escalation of commitment, leads us to lavish time and money on hopeless endeavors. Understanding why we persist—and how to stop the spiral—is essential for sound decision-making.
The dilemma of when to quit is universal, spanning from personal choices like repairing an old car to multi-billion pound infrastructure projects. While the proverb "try, try again" suggests persistence is a virtue, economics provides a more rigorous framework: we should only continue if the marginal benefits of completion outweigh the marginal costs. However, psychological research indicates that humans frequently ignore this logic, instead becoming caught in a cycle where they reinvest in failing ventures.
The consequences of this behavior are often staggering and well-documented. For example, London’s Crossrail project and Brandenburg’s airport faced massive delays and cost overruns. Similarly, the refurbishment of London's Savoy Hotel nearly doubled its forecast costs and timeline. Additional instances involve Edinburgh's tram network, debuting in 2014 with a £375 million deficit and three-year delay, plus Amsterdam’s subterranean metro, where expenses nearly doubled whilst being built.
The risks of escalation are not just financial but can lead to compounding difficulties. A stark contrast is found in the 1961 Libyan Desert oil exploration. After seven fruitless years of drilling by Bunker Nelson Hunt and BP, operatives were told to stop. Only a final, almost accidental ten-foot drill into the sand uncovered one of the world's largest oil fields. This highlights the extreme uncertainty of risky business: persistence can lead to a windfall, but it can just as easily result in "money down the drain," such as Chicago’s Deep Tunnel sewer project.
Recognizing these patterns is key to preventing projects from spiraling out of control. By identifying when an activity has unraveled and objectively weighing marginal costs against benefits, decision-makers can avoid the ubiquitous trap of escalating commitment.
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Sources
- Summary by Intellect · source: "Knee deep in the big muddy": Escalation of Commitment - Professor Helga Drummond
- Also: "Knee deep in the big muddy": Escalation of Commitment
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