RETHINKING ESCALATION OF COMMITMENT IN NEW PRODUCT DEVELOPMENT : DRIVERS AND GOVERNANCE
Keywords:
Escalation of Commitment, New Product Development, Behavioral Decision Theory, Agency Theory
Abstract
New product development (NPD) projects are highly vulnerable to escalation of commitment due to behavioral biases and agency incentives. Integrating Behavioral Decision Theory and Agency Theory, this study identifies that escalation is driven by past experiences (prior failures, ownership), cognitive biases (confirmation bias, overconfidence), and agency conflicts (reputation, compensation, emotional attachment). To mitigate this behavior and improve innovation governance, firms can implement open innovation, leadership changes, and failure-recognition systems. In conclusion, this study bridges theory and practice by offering actionable organizational solutions to mitigate costly escalation in under performing projects.
References
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Midtgård, K., & Selart, M. (2025). Cognitive Biases in Strategic Decision-Making. Administrative Sciences, 15(6), 227. https://doi.org/10.3390/admsci15060227
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Sabel, R., Gerstel, H., and Wöhrmann, A., (2022). Celebrating Failure: The Effects of Failure Awards on Risk-Taking and Escalation of Commitment. Available at SSRN: http://dx.doi.org/10.2139/ssrn.4612879
Sarangee, K. R., Schmidt, J. B., & Calantone, R. J. (2019). Anticipated regret and escalation of commitment to failing new product development projects in business markets. Industrial Marketing Management, 76, 157-168. https://doi.org/10.1016/j.indmarman.2018.08.008
Schmidt, J.B., Calantone, R.J. (2002). Escalation of commitment during new product development. Journal of the Academy of Marketing Science 30, 103–118. https://doi.org/10.1177/03079459994362
Schmitzer-Torbert, N. (2020) Mindfulness and decision making: sunk costs or escalation of commitment? Cognitive Processing 21, 391–402. https://doi.org/10.1007/s10339-020-00978-4
Sleesman, D.J., Lennard A.C., McNamara, G., and Conlon, D.E., (2018) Putting Escalation of Commitment in Context: A Multilevel Review and Analysis. ANNALS, 12, 178–207, https://doi.org/10.5465/annals.2016.0046
Takemura, K. (2020). Behavioral Decision Theory. Oxford Research Encyclopedia of Politics https://doi.org/10.1093/acrefore/9780190228637.013.958
van der Pas, M., & van der Pas, N. (2019). Escalation of commitment in NPD and cost saving IT projects. Proceedings of the 12th IADIS International Conference Information Systems 2019, IS 2019 (pp. 276-280). IADIS Press. https://doi.org/10.33965/is2019_201905c009
Wen, N., Usman, M., & Akbar, A. (2023). The Nexus between Managerial Overconfidence, Corporate Innovation, and Institutional Effectiveness. Sustainability, 15(8), 6524. https://doi.org/10.3390/su15086524
Yang, M. M., Yang, F., & Li, X. (2023). Open innovation and de-escalation of commitment in underperforming new product development projects. Journal of Business Research, 164, 113989. https://doi.org/10.1016/j.jbusres.2023.113989
Yang, Q., Shan, C., Jiang, B., Yang, N., & Yao, T. (2018). Managing the complexity of new product development project from the perspectives of customer needs and entropy. Concurrent Engineering, 26(4), 328–340. https://doi.org/10.1177/1063293X18798001
Zavertiaeva MA, López-Iturriaga FJ, Kuminova EV. (2018). Better innovators or more innovators? Managerial overconfidence and corporate R&D. Managerial and Decision Economics. 39:447–461. https://doi.org/10.1002/mde.2917
Zuckerberg, M. (2021). Founder's letter, 2021. Meta. Retrieved from https://about.fb.com/news/2021/10/founders-letter/
Bazerman, M. H., & Sezer, O. (2016). Bounded awareness: Implications for ethical decision making. Organizational Behavior and Human Decision Processes, 136, 95–105. http://dx.doi.org/10.1016/j.obhdp.2015.11.004
Chulkov, D. (2024). Turnover by Non-CEO Executives in Top Management Teams and Escalation of Commitment. Journal of Risk and Financial Management, 17(5), 195. https://doi.org/10.3390/jrfm17050195
de Jong, M., Banholzer, M., Doherty, R., & LaBerge, L. (2025). How top performers use innovation to grow within and beyond the core. McKinsey & Company. Retrieved from https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/how-top-performers-use-innovation-to-grow-within-and-beyond-the-core
Devigne, D., Manigart, S., & Wright, M. (2016). Escalation of commitment in venture capital decision making: Differentiating between domestic and international investors. Journal of Business Venturing, 31(3), 253-271. http://dx.doi.org/10.1016/j.jbusvent.2016.01.001
Dorison, C. A., Umphres, C. K., & Lerner, J. S. (2022). Staying the course: Decision makers who escalate commitment are trusted and trustworthy. Journal of Experimental Psychology: General, 151(4), 960–965. https://doi.org/10.1037/xge0001101
Falahat, M., Chong, S. C., & Liew, C. (2024). Navigating new product development: Uncovering factors and overcoming challenges for success. Heliyon, 10(1). https://doi.org/10.1016/j.heliyon.2023.e23763
Feldman, G., & Wong, K. F. E. (2018). When Action-Inaction Framing Leads to Higher Escalation of Commitment: A New Inaction-Effect Perspective on the Sunk-Cost Fallacy. Psychological Science, 29(4), 537–548. https://doi.org/10.1177/0956797617739368
Guenzel, M & Liu, T. (2026). Excess Commitment in R&D, The Review of Financial Studies, Volume 39, Pages 2179–2221, https://doi.org/10.1093/rfs/hhag026
Guedj, I., and Scharfstein, D. (2004). "Organizational Scope and Investment: Evidence from the Drug Development Strategies and Performance of Biopharmaceutical Firms," NBER Working Paper 10933, https://doi.org/10.3386/w10933.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Kalmanovich-Cohen, H., Pearsall, M. J., & Christian, J. S. (2018). The effects of leadership change on team escalation of commitment. The Leadership Quarterly, 29(5), 597-608. https://doi.org/10.1016/j.leaqua.2018.03.004
Krastev, D., Garzon-Vico, A., & Rosier, J, A. (2022). The Role of Overconfidence and Responsibility in Escalation of Commitment in New Product Development. Proceedings, 2022, https://doi.org/10.5465/AMBPP.2022.14393abstract
Liang, B., Kale, S. H., & Cherian, J. (2014). Is the future static or dynamic? The role of culture on escalation of commitment in new product development. Industrial Marketing Management, 43(1), 155–163. https://doi.org/10.1016/j.indmarman.2013.08.009
Meta Platforms, Inc. (2023). Meta reports fourth quarter and full year 2022 results. Meta Investor Relations Retrieved from https://investor.atmeta.com/investor-news/press-release-details/2023/Meta-Reports-Fourth-Quarter-and-Full-Year-2022-Results/
Meta Platforms, Inc. (2025). Meta reports fourth quarter and full year 2024 results. Meta Investor Relations Retrieved from https://investor.atmeta.com/investor-news/press-release-details/2025/Meta-Reports-Fourth-Quarter-and-Full-Year-2024-Results/
Meta Platforms, Inc. (2026). META Q4 2025 earnings call transcript. Retrieved from https://s21.q4cdn.com/399680738/files/doc_financials/2025/q4/META-Q4-2025-Earnings-Call-Transcript.pdf
Meta Platforms, Inc. (2026). Meta reports fourth quarter and full year 2025 results. Meta Investor Relations Retrieved from https://investor.atmeta.com/investor-news/press-release-details/2026/Meta-Reports-Fourth-Quarter-and-Full-Year-2025-Results/
Midtgård, K., & Selart, M. (2025). Cognitive Biases in Strategic Decision-Making. Administrative Sciences, 15(6), 227. https://doi.org/10.3390/admsci15060227
Miller, J.S., Wiseman, R.M., & Gomez-Mejia, L.R., (2002). The Fit Between CEO Compensation Design and Firm Risk. Academy of Management Journal, 45, 745–756, https://doi.org/10.5465/3069308
Nickel, J., Schuhmacher, M. C., & Kuester, S. (2026). How decision failures shape escalation of commitment: the role of regret and regulatory focus. Journal of Business Research, 215, 116311. https://doi.org/10.1016/j.jbusres.2026.116311
Sabel, R., Gerstel, H., and Wöhrmann, A., (2022). Celebrating Failure: The Effects of Failure Awards on Risk-Taking and Escalation of Commitment. Available at SSRN: http://dx.doi.org/10.2139/ssrn.4612879
Sarangee, K. R., Schmidt, J. B., & Calantone, R. J. (2019). Anticipated regret and escalation of commitment to failing new product development projects in business markets. Industrial Marketing Management, 76, 157-168. https://doi.org/10.1016/j.indmarman.2018.08.008
Schmidt, J.B., Calantone, R.J. (2002). Escalation of commitment during new product development. Journal of the Academy of Marketing Science 30, 103–118. https://doi.org/10.1177/03079459994362
Schmitzer-Torbert, N. (2020) Mindfulness and decision making: sunk costs or escalation of commitment? Cognitive Processing 21, 391–402. https://doi.org/10.1007/s10339-020-00978-4
Sleesman, D.J., Lennard A.C., McNamara, G., and Conlon, D.E., (2018) Putting Escalation of Commitment in Context: A Multilevel Review and Analysis. ANNALS, 12, 178–207, https://doi.org/10.5465/annals.2016.0046
Takemura, K. (2020). Behavioral Decision Theory. Oxford Research Encyclopedia of Politics https://doi.org/10.1093/acrefore/9780190228637.013.958
van der Pas, M., & van der Pas, N. (2019). Escalation of commitment in NPD and cost saving IT projects. Proceedings of the 12th IADIS International Conference Information Systems 2019, IS 2019 (pp. 276-280). IADIS Press. https://doi.org/10.33965/is2019_201905c009
Wen, N., Usman, M., & Akbar, A. (2023). The Nexus between Managerial Overconfidence, Corporate Innovation, and Institutional Effectiveness. Sustainability, 15(8), 6524. https://doi.org/10.3390/su15086524
Yang, M. M., Yang, F., & Li, X. (2023). Open innovation and de-escalation of commitment in underperforming new product development projects. Journal of Business Research, 164, 113989. https://doi.org/10.1016/j.jbusres.2023.113989
Yang, Q., Shan, C., Jiang, B., Yang, N., & Yao, T. (2018). Managing the complexity of new product development project from the perspectives of customer needs and entropy. Concurrent Engineering, 26(4), 328–340. https://doi.org/10.1177/1063293X18798001
Zavertiaeva MA, López-Iturriaga FJ, Kuminova EV. (2018). Better innovators or more innovators? Managerial overconfidence and corporate R&D. Managerial and Decision Economics. 39:447–461. https://doi.org/10.1002/mde.2917
Zuckerberg, M. (2021). Founder's letter, 2021. Meta. Retrieved from https://about.fb.com/news/2021/10/founders-letter/
Published
2026-09-29
How to Cite
Adhyaksa, F. (2026). RETHINKING ESCALATION OF COMMITMENT IN NEW PRODUCT DEVELOPMENT : DRIVERS AND GOVERNANCE. Jurnal Ilmiah Manajemen, Ekonomi, & Akuntansi (MEA), 10(3), 187-203. https://doi.org/10.31955/mea.v10i3.7830
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Articles
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