Question

Assume that you have chosen Santa Cruz, California, for your factory. After your decision you determine that the land will cost 10% more than you estimated but decide to proceed anyway. You then learn that construction costs will be around 5% more than projected but still move ahead. Next you learn that a local labor union will almost certainly organize your workforce there and raise labor costs by 12% more than your original estimate. Nevertheless, you continue to move forward with the project. Which behavioral aspect of decision making does this most closely illustrate? Escalation of commitment Bounded rationality Intuition O Ethics Political forces

Answer 1

Ans:

In the given case we have decided setting up factory at Santa Cruz, California, despite there are clear and and convincing evidence that plenty of problems exist such as land will be cost 10% more than the estimate, construction cost will be 5% more than the projected, labor cost will be 12% more than the original estimate.  This tendency to persist in an ineffective course of action when evidence reveals that the plan/activity/decision cannot succeed is known as escalation of commitment. Generally the reason for escalation of commitment is involvement of the decision-maker's ego.

It is clearly evident from the above situation is in this decision ego is involved. Hence in this case the most closely illustrated behavioural aspect of decision making is escalation of commitment.