RETHINKING ESCALATION OF COMMITMENT IN NEW PRODUCT DEVELOPMENT : DRIVERS AND GOVERNANCE

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.