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The effect of optimism bias on the

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ARTICLE Decision Making August 2014
Project Management Journal
By Meyer, Werner G.
How to cite this article:

Meyer, W. G. (2014). The effect of optimism bias on the decision to terminate failing projects. Project
Management Journal, 45(4), 720. doi: http://dx.doi.org/10.1002/pmj.21435
ABSTRACT
This research presents the findings from an experiment that investigated to what extent decision
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makers suffer from optimism bias when escalating a commitment to failing projects; 345
individuals, involved in project decision making, participated in the experiment. A new form of
optimism bias, namely post-project optimism bias, is defined. Post-project optimism bias is an
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overly optimistic belief that a project will deliver better business benefits than what was planned
or that can be proven. It is further confirmed that both post-project and in-project optimism
biases have significant effects on the escalation of commitment to failing projects.
KEYWORDS: escalation of commitment; decision making; optimism bias; portfolio management
INTRODUCTION
A person who makes a physical or psychological investment usually attaches some value to that
investment. Examples of such investments include financial investments, waiting in queues,
romantic relationships, self-identity, and projects (Brockner et al., 1986). When it appears to the
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person that the investment is not going to give the expected returns, there are three possible
courses of action: withdraw from the investment (terminate), continue with the investment as ARTICLE Quality Management , Decision Making , Skill
Development 1 June 2017
originally planned (persistence), or invest more than what was originally intended (escalation).
The terms escalation and commitment are often used to indicate either persistence or Project Management Journal
increased investment (Staw, 1997). The Impact of Emotional

Intelligence, Project Managers'
The behavior to persist with a failing course of action has been studied by a number of scholars Competencies, and
under different themes: escalation of commitment (Staw, 1976), the too-much-invested-to- Transformational Leadership on
quit effect (Teger, 1980), psychology of entrapment (Brockner & Rubin, 1985), and the sunk Project Success
cost effect (Arkes & Blumer, 1985). By Maqbool, Rashid | Sudong, Ye | Manzoor,
Nasir | Rashid, Yahya Project stakeholders
Escalation of commitment (The term escalation of commitment is commonly used in the
always strive for a successful project, hence
existing literature and is typically abbreviated EoC.) situations have three distinct attributes there is growing concern about the factors that
(Staw & Ross, 1987): influence project success. Although the success
of a project is influenced by
Some unforeseen loss or cost has resulted from the original situation;
The failed situation arose over a period of time and is not a one-shot decision problem;
ARTICLE Decision Making 1 May 2017
and
PM Network
Simple withdrawal from the situation is not an obvious solution to the problem. Life Hacks
It is widely recognized that Staw did the pioneering work on escalation of commitment, and Project practitioners from all over the world
many other authors have based their work on his research (Rice, 2010). answer the question: How do you apply project
many other authors have based their work on his research (Rice, 2010).
management skills in everyday life?
Existing research has clarified many of the unresolved issues of escalation of commitment, but
much uncertainty still exists about the specific reasons or determinants that lead to it. There is
ARTICLE Strategy , Decision Making 1 March 2017
presently no generally accepted model of escalation of commitment and no consensus about the
determinants or the exact ways in which they affect a decision maker (Rice, 2010). PM Network
Ignore What Doesn't Matter
Optimism bias is an area that is not well-researched in the context of escalation of commitment
By Robinson, Andrew During my career I've
and projects, and past research in this area was primarily done by psychologists who used so-
learned that the core role of a senior executive
called projects in decision-making experiments (Conlon & Garland, 1993; Jensen, Conlon, or project manager is not to analyze a lot of
Humphrey, & Moon, 2011). These experimental projects were very simple and had very little numbers and delegate decision making. Rather,
resemblance to actual projects. The participants in the experiments were, in most cases, it's to focus on what's truly
undergraduate students who had no project management experience. The main focus of prior
research was on understanding human decision-making behavior as opposed to project ARTICLE Decision Making 1 March 2017
management decision-making behavior (Moon, 2001; Tversky & Kahneman, 1981).
PM Network
In this research, a new form of project optimism bias is introduced (i.e., post-project optimism On the Record
bias); prior research focused on in-project optimism bias, which focused on bias during the
By Barger, Robert If asked about a decision we
estimation process (Flyvbjerg, 2008) and during project execution (Tyebjee, 1987). made two hours ago, most of us could quickly
recall the factors that led us to it. When asked
The research question stemming from this research is whether decision makers, who are faced
about a decision we made two years ago, few of
with a project that is in trouble, will escalate their commitment to the project because they feel us would be able to do the
that the benefits from the project's product will exceed the benefit that was calculated in the
project's business case.
PUBLISHED RESEARCH Decision Making
2016
The first aim of this research is to take a project management view of the problem of escalation
of commitment and optimism bias and to test the decision-making behavior of individuals who Establishing a Theoretically
have an understanding of project management and who are involved in the decision-making Sound Baseline for Expert
process when portfolios of projects are evaluated. Judgment in Project
Management
The second aim is to determine whether decision makers will discard estimations of the business
By Paul Szwed Expert judgment is a
benefit of a project, made in the project's business case, in favor of their own, overly optimistic,
major source of information that can
re-estimation of business benefits when the project is in trouble. provide vital input to project
managers, who must ensure that
Background projects are completed successfully,
on time, and on budget.
In the study of escalation of commitment, one inevitably touches on other areas of decision
making. Economists differentiate between decisions made under risk and decisions made under
uncertainty (Fox & Poldrack, 2009; Knight, 1921). When making a decision under risk, decision
makers know with certainty what the probability distribution of possible outcomes is (e.g., when
throwing dice). When making a decision under uncertainty, decision makers do not know with
certainty what the probabilities of the outcomes are (e.g., investing money in the stock market),
and must therefore consider other factors to motivate their decisions. Decision makers who
select projects deal with both these types of decisions; in some cases the probabilities are
known, but in other cases the decision maker has to deal with much ambiguity. Both of these
situations can lead to escalation of commitment (Staw, 1997).
Projects that are late and/or overbudget are not by default candidates for termination (Karevold
& Teigen, 2010; Staw, 1997; Unger, Kock, Gemnden, & Jonas, 2011). Organizations would
usually support projects where the return exceeds the investment (Project Management
Institute, 2013). It should further be noted that investments and returns are not always
measured in monetary terms, and that factors such as market growth, competitiveness, and top
management interests may be the units of measurement (Lee & Om, 1996). In this research,
financial measures are used because they are commonly used and understood across most
industries.
There is usually a difference between the point where the actual investment in a project exceeds
the planned or budgeted investment, and the point where the actual investment exceeds the
anticipated benefit. Stopping a project when the actual investment exceeds the planned
investment would not make sense since the project could still yield a handsome return on
investment (Karlsson, Grling, & Bonini, 2005; Northcraft & Wolf, 1984). There are many
financial measurements and methods available to determine the return on investment of a
project (Jonas, 2010), and the difference between the investment and expected return can easily
be calculated in financial terms.
There is also a difference between the point where the project starts to exceed its planned
investment and the point where a decision maker will actually decide to stop the project. This
difference is a major dilemma for decision makers, because waiting for a project's investment to
erode all the predicted business benefits before deciding to stop the project is not an optimal
decision. A decision maker would prefer to terminate the project once it becomes clear that the
business benefit, or some threshold toward that benefit, will be eroded, hence improving the
project termination quality (Unger et al., 2011). The decision maker must therefore rely on a
forecast of the future benefit deterioration when considering stopping the project. Any forecast
has an element of uncertainty, and the behavior of a decision maker is significantly influenced by
project, psychological, social, organizational, and contextual factors (Simon et al., 1987; Staw,
1997).
For projects that are pursued for financial benefit, it is obvious that a project with a negative
return on investment will not yield financial benefits, and should be stopped. In fact, a decision
maker would ideally want to stop a project before the return on investment is completely
eroded, because any unused investment funds can be used for other projects that may turn out
to be better investments.
There are many well-documented examples of continued investment in failed projects, long after
it became clear that the project would not have any benefits, for example: World's Fair Expo 86
(Ross & Staw, 1986), the Shoreham nuclear power plant (Ross & Staw, 1993), the Chicago Deep
Tunnel Project (Staw & Ross, 1987), Ravensthorpe Nickel Mine (BHP Billiton, 2009), and The
National Programme for IT (TaxPayers Alliance, 2009). Flyvbjerg, Bruzelius, and Rothengatter
(2009) document project failures on a number of large transportation projects.
Literature Review
Existing literature suggests that decision makers will escalate the commitment of resources to a
failing course of action (i.e., a failing project) for a variety of reasons. These reasons, or
determinants, are often categorized into project, psychological, social, organizational, and
contextual determinants (Staw, 1997). Within these categories a number of determinants have
been studied in much detail (Sleesman, Conlon, McNamara, & Miles, 2012): self-justification
(Brockner, 1992; Staw, 1976; Staw & Fox, 1977), sunk cost effect (Arkes & Blumer, 1985;
Coleman, 2010; Garland, 1990; Northcraft & Wolf, 1984), project completion (Conlon & Garland,
1993; Garland & Conlon, 1998; Jensen et al., 2011), and optimism bias (Fischhoff, Slovic, &
Lichtenstein, 1977; Lovallo & Kahneman, 2003; Sharot et al., 2012; Weinstein, 1980). A number of
other determinants have been proposed, mostly by Staw (1997), but some of these overlap with
previously proposed determinants and have not received much coverage. A total of 34 escalation
determinants have been identified from the existing research. Table 1 lists the identified
determinants and the associated researchers.
Projects that are overspent or behind schedule do not get into that predicament overnight.
These situations usually arise from a gradual progression of small cost and time deviations that
accumulate to create the problem. There are, of course, events that happen on projects that can
cause sudden erosion in the return on investment, but these events are not commonplace. Case
studies of failed projects clearly show that the studied projects suffered from a number of small
problems that built up over time until the return on investment was completely eroded, and the
project was actually consuming funds beyond what was earmarked for the project (Keil, 1995;
Ross & Staw, 1986, 1993).
Whether a project gets into trouble over an extended period of time or overnight does not affect
this discussion; the fact remains that there will be a decision maker looking at the project and
contemplating whether to spend more resources on the project or to stop it.
Various models were developed in the past to explain escalation behavior. The most notable
examples are the two models by Staw (1997). Mhring and Keil (2008) propose an escalation
process model from observations in information technology projects. These models explain the
process that decision makers go through when dealing with an escalation situation. Past research
has also shown that escalation behavior may change over the life of the project (Brockner, 1992).
There is, however, not currently a model that explains the change in behavior of a decision
maker over the life of the investment. Such a model would be useful to understand at what point
in the escalation process a decision maker decides to stop the project and what triggers this
decision. This study does not attempt to propose such a model; rather, it makes a contribution
that will promote the development of such a model.
Bazerman and Samuelson (1983) suggest that an overly optimistic belief in the successful
outcome of a project could lead to escalation of commitment.
Optimism bias refers to the tendency of people to believe that they are less likely to experience
negative events and more likely to experience positive events than other people. Optimism bias
is a relatively new term for this phenomenon, but it has been studied for many years as belief
and desire (Lund, 1925), unwarranted optimism (Tversky & Kahneman, 1974), unwarranted
certainty (Fischhoff et al., 1977), unrealistic optimism (Weinstein, 1980), and comparative
optimism (Shepperd, Carroll, Grace, & Terry, 2002).
One of the earliest studies shows that the desire of decision makers for a particular outcome is
strongly correlated with their belief that the outcome will be achieved (Lund, 1925).
Humans have a built-in bias to be optimistic about future events. This bias is difficult to control,
and even when decision makers are aware of this bias, they are highly unlikely to control or alter
their behavior (Lovallo & Kahneman, 2003; Sharot et al., 2012). Optimism bias has been
observed in nearly every human endeavor that involves the prediction of future events, and
psychologists argue that it is a major mechanism for survival in humans (Sharot et al., 2012).
Sharot et al. (2012) found that optimism is seated in the inferior frontal gyrus (IFG) part of the
brain. Interfering with the physical functioning of the IFG through transcranial magnetic
stimulation decreases optimism bias, suggesting that optimism bias is a biological attribute of
humans.
Optimism bias in the context of project management has been studied by a number of scholars.
These studies have focused on the optimism of managers that a project that is failing in terms of
on-time delivery or within-budget completion can be recovered to deliver within the original
time and cost parameters.
Experiments with optimism during the planning of a project show that engaging in planning
activity causes optimism in the planner about what the plan can achieve (Tyebjee, 1987, p. 398).
Project success is also affected by optimism, since project failure may not only be judged in
terms of the technical deliverables and performance of the project, but also by the ability of the
project to meet the unrealistically optimistic performance expectations of management
(Tyebjee, 1987).
Bidders in a competitive situation may suffer from the Winner's Curse, which results in overly
optimistic cost estimates. Jorgensen and Grimstad (2005) show how overly optimistic bidders
for a software project may end up with very low or negative profits. This is particularly true when
a large number of bidders are involved. Since software deliverables are easily changeable after
winning a bid, the initial over optimism may lead to low-quality deliverables and schedule
overruns.
Significant estimation inaccuracies in transportation projects have been studied by Flyvbjerg

(2006), who argues that the problem is not due to outdated data of forecasting methods, but
that optimism bias plays a significant role. Reference class forecasting (which uses data from
previous similar projects to forecast project cost) is proposed as a forecasting method to bypass
optimism bias by focusing on the final project cost as opposed to the project's specific attributes
that make up its cost (Flyvbjerg, 2008). Not all cost and schedule overruns are, however, due to
optimism bias and strategic misrepresentation. There are often other underlying pathogens that
lead to problems such as design errors that could lead to project failure (Love, Edwards, & Irani,
2012).
The effect of optimism bias has become so prevalent in some sectors that specific corrective
measures have been adopted. Following the Mott MacDonald (2002) report on large
procurement in the United Kingdom, HM Treasury included optimism bias in their The Green
Book: Appraisal and Evaluation in Central Government, Treasury Guidance (HM Treasury, 2011)
and Supplementary Green Book Guidance: Optimism Bias (HM Treasury, 2002). These guidance
books specifically address optimism bias about four project parameters: capital costs, works
duration, operating costs, and under delivery of benefits (HM Treasury, 2011, p. 85) and propose
actions that should be taken to reduce unwarranted optimism.
Organizational dynamics may also lead to optimism bias during the planning and control of
construction activities. Son and Rojas (2010) developed a system dynamics model, which
suggests that introducing an explicit method for analyzing and incorporating the effect of
organizational dynamics in projects leads to more realistic planning and control practices.
Existing literature does not make a specific link between optimism bias about the future benefits
of a project's deliverable (or product) and escalation of commitment. Karlsson, Grling, and
Bonini (2005) do, however, note that decision makers may escalate commitment even if they
know that the future investment will not have proven economic benefits. They suggest that this
behavior may be linked to the sunk cost effect, marginal decision making, and rate-or-return
hypothesis, but note that these effects do not describe the behavior of decision makers
satisfactorily and that there are probably other reasons that contribute to this behavior.
Hypotheses
Optimism bias literature suggests that decision makers will be overly optimistic about the future
benefits of a project. This optimism can play out in a number of ways.
Optimism can exist about the decision maker's own ability to influence the delivery of a project
within the originally estimated cost and time (Bazerman & Samuelson, 1983; Juliusson, 2006;
Tyebjee, 1987). This would be translated into a decision maker believing that a situation in which
the estimated cost to complete the project is greater than the estimate at the start of the project
and can be turned around to deliver the project within its original budget. In this paper, this type
of behavior is referred to as in-project optimism bias.
Based on this predicted behavior, the first hypothesis is defined, which addresses in-project
optimism:
H1: Decision makers believe that it is possible to reduce the predicted cost or time overrun of a project
through their own managerial efforts.
A number of case studies, discussed below, suggest that optimism can also exist about the
business benefits of the project. This type of optimism can take three forms. The first form is
optimism that the direct benefits from the project will be higher than originally estimated (i.e.,
the decision maker's perception of the return on investment is greater than the return on
investment calculated in the business case).
Ascher (1993) reports on a sample of 1,200 World Bank projects, which had an average
estimated return of 22%. In most cases, the project owners were confident that they would get
better returns; however, the recalculated return post-construction was on average 15% and in
some cases less than 12%. Over-optimism about the project returns is cited as a major
contributor for the motivation of these projects. In these situations decision makers may feel
that the assumptions in the project's original business case were too conservative and that the
actual benefits would be better.
The second form is optimism about unplanned benefits from performing the project. Decision
makers may feel that there could be other spin-offs from doing the project and that these spin-
offs would be significant enough to justify the continuation of the project even if the return on
investment does not show this (Ross & Staw, 1986). This behavior would strongly suggest that
the decision maker's calculation of the estimated return on investment is greater than the
calculated return on investment; hence, decision makers prefer their assessment of the value of
the project over that of the calculated value. This behavior is suggested in a number of case
studies of actual projects that failed (Ross & Staw, 1986; Staw & Hoang, 1995; Staw, Koput, &
Barsade, 1997).
The third aspect of optimism is the underestimation of the losses that the project would suffer
as a result of the actual investment in the project being more than the planned investment. This
would lead the decision maker to overestimate the positive difference between the investment
and the benefit obtained from the investment. The decision maker may therefore be under the
impression that, even if the project overruns, it will still yield acceptable benefits (Ascher, 1993).
In this paper, the optimism about the returns of a project is defined as post-project optimism
bias. Based on this predicted behavior, the second hypothesis is defined, which addresses post-
project optimism:
H2: Decision makers believe that the estimated business benefit from the project will exceed the
calculated business benefit.
Research Methodology
Experiment Design
An experiment was used to test support for the defined hypotheses. This experiment is similar in
design to previous experiments that tested for escalation of commitment where a low project
completion and low cost scenario are compared with a high completion and high cost scenario
(Arkes & Blumer, 1985; Conlon & Garland, 1993; Garland & Conlon, 1998; Jensen et al., 2011;
Moon et al., 2003; Tan & Yates, 1995; Tversky & Kahneman, 1981). The design of the experiment
used in this research, therefore, allows for comparison with previous research in this area.
Past experiments used by psychologists were primarily designed to observe decision-making

behavior. These experiments often lacked detailed project information and focused on the
variation of the decisions within the group. An example of such an experiment is presented by
Arkes and Blumer (1985, p. 129):
As the president of an airline company, you have invested 10 million dollars of the company's money
into a research project. The purpose was to build a plane that would not be detected by conventional
radar, in other words, a radar-blank plane. When the project is 90% completed, another firm begins
marketing a plane that cannot be detected by radar. Also, it is apparent that their plane is much faster
and far more economical than the plane your company is building. The question is: should you invest
the last 10% of the research funds to finish your radar-blank plane?
These types of experiments have obvious limitations and respondents may have questions about
salvage value, reusability of equipment, alternative projects, potential other markets, and so
forth. The majority of past experiments in this area used undergraduate students as participants
in the experiments.
In the design of the experiment for the present research, specific information was incorporated
about the return on investment for the organization and the salvage value, in order to focus the
attention of the respondent on deciding whether it is feasible to continue with the project.
Respondents who have been in involved in project selection were targeted in this research.
Independent Variables
A five-group, post-test-only, randomized experiment jointly varied invested amount and project
progress. This experiment uses five intervals of 20%, 40%, 60%, 80%, and 110% (coded as S20
to S110) of the project budget spent, respectively.
Participants had to indicate whether or not they would continue with a project given the
scenario below. The values shown in square brackets were changed per scenario according to the
values in Table 2.
You are a manager in your organization and a member of a committee responsible for recommending
and selecting projects. Your company is conducting a project, which you recommended with a planned
cost of US$25 million (M) and a planned duration of 15 months. Before the project was started, the
estimated return on investment (ROI) was 30%. The project is now at the end of month [2] and the
project manager has reported that the project is likely to take four months longer (i.e., 19 months) to
complete. The actual cost to date for the project is [US$5M], and the project manager estimates that
the project will cost US$8.5M more than originally planned (i.e., US$33.5M). At a project review
meeting a decision must be made whether to continue with this project or not. If the project is stopped
now, approximately [US$2.5M] of the investment can be salvaged in the form of equipment and
material. The remainder is a sunk cost attributed to labor and consulting fees. If you stop the project,
the unused money and salvaged equipment and material will be redirected toward other new or
existing projects in the company.
Dependent Variables
After reading the scenario, the participants had to indicate whether they would continue with
the project or not.
Two of the dependent variables are cofounded. The sunk cost of the project increases with the
time progress of the project and one could reason that participants would find it difficult not to
relate the one to the other. The effects of sunk cost and project completion covariation are
investigated in detail by Conlon and Garland (1993).
After making a choice for the continuation or termination of the project, participants were asked
to motivate their decision. Participants were presented with the following statement:
In support of your decision, to what extent do you agree with the following statements?
Support for ten different motivation questions was tested. Only the four questions applicable to
the present study and are discussed in this paper.
The motivation statements are shown in italics in Table 3. For each statement the participant
had to choose his or her response from a seven-point Likert scale (Weijters, Cabooter, &
Schillewaert, 2010), ranging from 3, strongly disagree to +3, strongly agree. Each motivation
statement tested for the determinants is shown in the second column of Table 3.
After completing the motivation statements, participants had to answer a number of

demographic questions.
Setting and Sampling Strategy

The experiment was presented as a web-based and a paper-based survey. The web-based option
removed one of the main limitations of the study, which is confidentiality. The details of the
respondents were in no way captured unless the respondents provided their name and email
address to receive a copy of the experiment results.
Some of the participants were delegates who attended post-graduate project management
training courses. The setting was dictated by the fact that participants attended a training
course, which given the nature of the experiment, was unlikely to have had an influence on the
answers from the participants.
The data collection methods made it difficult to target only project decision makers. The fact
that the hyperlink to the web-based survey could be distributed freely meant that any person
could participate in the experiment. As far as the paper-based survey is concerned, it would have
been difficult to get only a portion of a classroom of students to complete the survey. The
sampling strategy for the web-based survey was random, and that of the post-graduate students
clustered. Participants who were not involved in project decision making were eliminated
through a mandatory question about their involvement in project selection in their organization.
Participants
The target population for this experiment was individuals who were in some way involved in the
selection of projects. The targeted individuals must have been in a position where they were
either decision makers in the portfolio selection process or part of the decision-making process.
Four hundred ninety-six respondents participated in the experiment; 345 respondents indicated
that they were directly involved in the selection, the motivation of projects for selection, or both
motivation and selection of projects. Only these responses were used in the quantitative analysis
to test the hypotheses.
Of the 345 selected respondents, 42% were post-graduate students in part-time project
management courses at two South African universities, and the remaining 58% had completed
the survey online.
Most of the students from the University of Pretoria (UP) and Tswane University of Technology
(TUT) in South Africa were working full-time and had exposure to projects and project
management on a regular basis. The students came from a diverse background of industries and
projects, and 58% indicated that they were part of the project selection process in the
organizations where they work.
The selected respondents were from 38 countries and 23 different industries; 87% of the
participants had bachelor's degrees or higher; 59% indicated that they worked in organizations
with more than 1,000 employees; 59% indicated that the average project duration is 6 to 24
months; and 79% reported that the value of projects in their organizations is below US$100
million.
Process
The experiment was conducted over eight weeks between March and April 2013. Invitations to
participate were sent to a list of personal contacts over a period of five weeks. The online survey
was enabled after the first participant was invited and was disabled eight weeks later. After this
survey period, the results were downloaded from the Survey Monkey website and analyzed.
The paper-based surveys at UP and TUT were manually administered by the researcher after a
class break. The surveys did not form part of any class activity and were not specifically
administered with any part of the curriculum in mind. The participants were briefed about the
experiment, and each participant was presented with a printed copy of the experiment. The
participant had to answer all the questions on the printed document. After completing the
experiment the participants handed the document back to the researcher.
The five scenarios were randomly selected in the online survey. In the paper-based survey the
five scenarios were randomized through handing out equal numbers of each scenario to the
group of respondents. All the participants remained anonymous unless they provided their
contact details to receive a copy of the survey results.
Results
Continue or Stop Decision

The responses of 345 respondents who were directly involved in project selection or the
motivation of projects for selection were analyzed; 211 (61%) chose to continue with the project,
and 134 (39%) chose to stop the project.
Respondents were 58% likely to continue with the project in S20. A slight decline in project
continuation is shown for S40 (51%). From the S60 point onward the escalation behavior
continues to increase with S60 and S80 at 65% and S110 at 69% (see Figure 1).
Chi-Square Test
A Chi-square test for association shows that there is not a statistically significant association
between the choice to continue or stop and the stage of project completion, 2(4) = 6.155, p =
.188.
Correlation
The data indicate that respondents have a higher tendency to continue with the project in the
second half of the project (60% scenario and larger). This supports previous research by Staw
(1997), Brockner (1992), Teger (1980), and Garland and Conlon (1998) and illustrates the
classical behavior of escalation of commitment, which posits that the further a project continues
the more likely the decision makers are to commit more resources. The full results are shown in
Table 4 and Figure 1.
The decision to continue with the project as the project approaches completion is positively
correlated but is not statistically significant, r = .800, p = .104.
Motivational Statements
Table 5 shows the means and standard deviations for each motivational statement per scenario.
Tests of Hypotheses
Statistical significance for both hypotheses is tested with t-tests to determine:
Whether there is a difference between the observed and expected assessments of the
decision maker's own managerial efforts to change the course of the project (H1).
Whether there is a difference between the observed and expected assessments of the
post-project business benefits (H2).
The tests are done across all the project scenarios, and the test value is set at 0.0, since a value
of 0.0 would indicate that there is no support for the tested motivation statement, which
means H0 cannot be rejected.
Three checks are done to validate whether the results of a t-test will be acceptable. The
observations are independent, because each case in the data set represents a single respondent
(i.e., the data do not show repeated measurements of the same respondents). Inspection of a
boxplot for values greater than 1.5 box-lengths from the edge of the box showed that there are
no outliers. The support for the motivating statements by respondents was normally distributed
as assessed by visual inspection of the Normal Q-Q Plot.
Statistical significance is tested at the 99% confidence level ( = .01), with N = 211 (respondents
who chose to continue with the project). The critical test value for t ratio is 2.60 at 99%
confidence (Larsen & Marx, 2012, p. 701).
Hypothesis 1
The project case given to the respondents clearly shows that the project is in trouble. Further
analysis of the scenario shows that the planned investment will exceed the budgeted investment
and that the financial benefit will be completely eroded. MS3 tests directly whether the decision
maker believes that lost time and money can be recovered as a reason to continue with the
project.
The results show that decision makers who chose to continue with the project support the
statement in motivation statement MS3 (M = .93, SD = 1.53). Motivational statement MS3
states: Even though the project is overrunning now, we usually manage to recover lost time and
cost overruns.
H0 for H1 states: Decision makers believe that their own managerial efforts will not affect the
time and cost overruns on a project.
Results
MS3 is positively supported in S20 to S110 (t(211) = 10.691, p < .001) for project continuation
and therefore supports H1. The choice of a decision maker to continue with the failing project
and the associated support for MS3 supports the notion that decision makers would, in the light
of a failing project, continue with the project while citing the possibility of recovering the project
to meet the planned schedule and budget as a reason for doing so.
When a decision maker chooses to abandon the project, the support for MS3 is significantly
negative in S20 to S110 (t(134) = 9.250, p < .001).
H0 is therefore rejected for H1, and the alternative hypothesis is accepted.
Hypothesis 2
Motivational statements, MS1 and MS2, test for support of optimism bias about the benefit that
will be gained from the project. Support for these statements, when a decision maker continues
with the project, indicates that the decision maker is optimistic about the outcome of the project
in support of the continuation decision. In order to show that the bias is related to the decision
to continue the project, there must be negative support for the statement when the decision
maker chose not to continue with the project.
The motivation statement MS1 states: We usually get better than expected returns from
projects over their useful life because of changes in market conditions and will eventually recover
the investment.
MS2 states: Even though the project is going to cost more, it is unlikely that we will lose the
benefits; we will just make a bit less.
The results show that decision makers who chose to continue with the project support
motivation statements MS1 (M = 1.14, SD = 1.55) and MS2 (M = 1.54, SD = 1.31). To test the
statistical significance of the support for this motivation statement, the following test is
performed:
H0 for H2 states: Decision makers believe that the estimated business benefits from the project
remain unchanged over the life of a project.
The expected assessment for MS1 and MS2 is that a decision maker will show neutral or negative
support for the motivation statements.
Results
The project description given to respondents makes no mention of additional benefits or spin-
offs from the project. The financial data in the scenario description are presented as data from
the business case, and it is clear that the project is in trouble. The decision maker would, with a
simple calculation, be able to calculate that the project has a negative return. A decision maker
who chose to continue with the project therefore indicates that the decision maker believes that
the project will have benefits that are not in the business case.
The t-test results for the motivational statements are as follows:
MS1 is positively supported in S20 to S110 (t(211) = 10.691, p < .001) for project continuation.
This result supports the notion that decision makers feel that the project will provide greater
business benefits after project completion. There is no information available to support this idea;
this support must therefore be subconsciously constructed by the decision maker.
When a decision maker chooses to abandon the project the support for MS1 is significantly
MS2 is positively supported in S20 to S110 (t(211) = 17.079, p < .001) for project continuation.
These results support the notion that decision makers feel that not all the benefits from the
project will be lost. This assertion is clearly incorrect, as a simple calculation with the data
available in the project description shows that the project will in fact lose money. The decision
makers must therefore be overly optimistic about the performance of the project.
When a decision maker chooses to abandon the project the support for MS2 is significantly
The test results are consistent with the hypothesis that decision makers who chose not to
terminate a project assess that their perception of the business benefit will exceed the calculated
project business benefit. H0 is therefore rejected for H2, and the alternative hypothesis is
accepted.
For both H1 and H2 it could be argued that decision makers continued with the project because
of fear of retribution from the company. Support for fear of not being promoted or losing one's
job was tested with MS4 (M = .55, SD = 1.78). A t-test was performed to compare the mean
value of respondents who chose to continue, and those who chose to stop the project.
The results of the t-test show that limiting career opportunities or promotions did not play a
role (t(211) = 4.522, p < .001) in the decision to continue the project.
Discussion
This study investigated the effect of optimism bias on the decision to escalate commitment to a
failing project. The results confirm the findings of a number of existing studies but also provide
new insights into two forms of optimism bias (i.e., in-project optimism bias and post project
optimism bias).
This study found that in-project optimism bias is a significant contributor to decision makers
motivation to continue with a failing project. One would have expected that it would have been
more prevalent in the early stages of a project since a lot of time remains to implement
corrective actions. The results show that, even though the highest support is for projects that are
in their early stages, the support remains high throughout the remainder of the project, even
after the project has overspent its budget. The results also show that, once a decision is made to
stop the project, support for in-project optimism falls away.
These results support the findings of Tyebjee (1987) and Flyvbjerg (2008) that optimism arises
during the planning of a project and specifically in the estimation activities. These activities are
usually based on the past experiences of the project planner and those involved in the
development of the project plan. These processes reflect on the capabilities of the individual
doing the estimate and are therefore susceptible to over optimism. In this regard, Flyvbjerg
(2008) offers reference-based forecasting as a solution to curbing this problem.
The second form of optimism, post-project optimism bias, is prevalent throughout the project
and increases as the project approaches the end. The support for post-project optimism bias
indicates that decision makers believe that a project will give better returns after the project is
completed than what was initially identified in the project's business case. This viewpoint
becomes more pronounced as the project progresses.
Very little past research has been done to investigate post-project optimism bias as a reason for
escalation of commitment. Karlsson, Juliusson, and Grling (2005) mention that decision makers
may escalate commitment even if they know that the future investment will not have proven
economic benefits, but they link this to the sunk cost effect and not optimism bias.
Post-project optimism bias suggests that decision makers are either not well-informed about the
project's business case and what can realistically be achieved, or they choose to ignore the facts
of the business case in lieu of their own assessment of the project benefits. The present study
strongly suggests the latter situation.
The challenge faced by organizations is to find managerial and systemic solutions to deal with
both forms of optimism bias. This is complicated by the fact that humans are hard-wired to
being optimistic (Sharot et al., 2012) and have a tendency to rely on their own assessment of a
project in spite of conflicting empirical evidence.
Conclusion
In this research, an experiment was conducted to test the impact of in-project and post-project
optimism bias on the decision to continue with a failing project. The experiment tested the
behavior of decision makers over five different scenarios of a project at different stages of
completion; 496 respondents participated in the experiment. The responses of 345 respondents
who indicated that they are involved in project selection were statistically analyzed to test two
hypotheses.
Significant support was shown for both types of optimism bias. These results suggest that the
decision makers are very likely to escalate commitment to a failing project because they have a
perception that the benefits from the project's product will exceed the benefits that were
calculated in the project's business case.
This research adds to our understanding of the behavior of decision makers in a number of ways.
Decision makers will very often be overly optimistic about the influence they have over the
outcomes of projects (in-project optimism). They will also be optimistic that projects will deliver
better business benefits than what can be proven through the traditional methods of business
case development (post-project optimism). Senior managers should therefore be aware that
decision makers who escalate commitment often act from a position of optimism when
assessing projects. There is no correlation between the level of completion and the decision to
continue investing in the project.
Managerial Implications
This research has implications for senior managers in organizations that invest in projects. In-
project and post project optimism bias have a significant effect on the decision to continue with
a failing project and indicates that managers will have an unrealistically positive view of failing
projects. This optimism is reflected in the tendency of managers to believe that they can salvage
failing projects and that a troubled project will yield better than planned business benefits.
Organizations should avoid expensive escalating situations by introducing suitable management

interventions. This requires understanding of the behavior of decision makers. The challenge
faced by managers is that optimism bias is a biological attribute in humans and finding
managerial interventions to counter that optimism may be difficult (Sharot et al., 2012).
Flyvbjerg (2008) recommends reference class forecasting as a specific way to deal with in-project
optimism bias. This method essentially removes the project planner's reliance on his or her own
experience when performing estimates.
A number of general de-escalation strategies have been proposed in the existing literature. Staw
and Ross (1987) propose that the decision makers on projects should be changed from time-to-
time to break escalation behavior. To achieve a similar de-escalation effect they also propose
that the responsibility for project decisions should be changed over the life of the project. Keil
(1995) proposes early and frequent project risk assessments and project audits as de-escalation
methods. Even though these strategies are not specific to optimism bias, they may force decision
makers to revisit the initial project business case as a basis for decision making.
Theoretical Implications
The results further support the notion that decision makers are concurrently influenced by both
in-project and post-project optimism bias when assessing the merits of escalating commitment.
The results confirm in-project optimism bias and further show that this form of bias prevails
throughout the life of a project.
The post-project optimism bias results of this research suggest that decision makers change
their assessment of the business drivers that make up the post-project benefits of a project. The
results further suggest that there is a difference between the calculated benefits from a project,
and the benefits perceived by decision makers at any point during project implementation. This
would further indicate that a descriptive and predictive model for escalation could exist, which
describes the optimism bias determinant. This model would be based on the cumulative (and
optimistic) build-up of valueadding business drivers that contribute to the value of the project.
Limitations
The results from this research do not show whether decision makers will eventually terminate a
project or at what point that will take place. The results, in fact, indicate that optimism increases
as the project gets deeper into trouble.
The study only considered the effect of financial aspects on the decision makers. The effect of
optimism bias on nonmonetary benefits, sustainable business growth, employee well-being,
company image, and so forth was not tested.
Decision making by committees was not investigated. The experiment was aimed at individual
decision makers who could be part of a project selection committee.
A control group was not set up to test the level of support for the given statements, for a project
that is not in trouble. This research tests for the relative change in behavior between the five
scenarios.
Each respondent was presented with one of the five scenarios. The scenarios are lengthy and
presenting a single respondent with more than one scenario may have created bias, because the
respondent would have compared his or her responses to one scenario to the responses he or
she gave for the preceding scenarios.
Future Research
Future research to determine which decision makers are influenced by nonmonetary
determinants will be useful. The fact that money is often a major consideration for managers
may cause decision makers to behave differently when faced with situations in which so-called
soft issues are at stake.
Research to determine whether, and at what point, decision makers will eventually terminate a
failing project would be of interest, since the data from this research show that decision makers
increase their escalation, even after the project's budget has been eroded.
The selection of projects in organizations is often done by groups of decision makers
(Ghasemzadeh, Archer, & Iyogun, 1999). It has been suggested the groups tend to escalate more
than individuals (Whyte, 1993) and further research on in-project and post-project optimism
bias in a group setting would be of interest.
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Werner G. Meyer is a project management consultant specializing in maturity assessments and

project office implementations and holds MSc and PhD degrees in project management from
SKEMA Business School in France. His research interest is decision making under risk and
uncertainty, and specifically, the decision-making processes of project stakeholders. He has
presented papers on the topic of decision making at a number of international conferences. His
current research focus is on the use of computer software simulations to study the decision-
making behavior of portfolio managers. He can be contacted at werner@projectlink.co.za
This material has been reproduced with the permission of the copyright owner. Unauthorized
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contact PMI.
Project Management Journal, Vol. 45, No. 4, 720
2014 by the Project Management Institute
Published online in Wiley Online Library (wileyonlinelibrary.com ). DOI: 10.1002/pmj.21435
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The effect of optimism bias on the

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KEYWORDS: escalation of commitment; decision making; optimism bias; portfolio management

increased investment (Staw, 1997). The Impact of Emotional

Significant estimation inaccuracies in transportation projects have been studied by Flyvbjerg

Past experiments used by psychologists were primarily designed to observe decision-making

After completing the motivation statements, participants had to answer a number of

Setting and Sampling Strategy

Continue or Stop Decision

Statistical significance for both hypotheses is tested with t-tests to determine:

H0 is therefore rejected for H1, and the alternative hypothesis is accepted.

The t-test results for the motivational statements are as follows:

Organizations should avoid expensive escalating situations by introducing suitable management

Bhattacharya, A. (2010). Expectancy theory: Wishful thinking. Nature, 464(7287), 456.

Brockner, J. (1992). The escalation of commitment to a failing course of action: Toward

Flyvbjerg, B. (2008). Curbing optimism bias and strategic misrepresentation in planning:

Jonas, D. (2010). Empowering project portfolio managers: How management involvement

Juliusson, A. (2006). Cognition and neurosciences: Optimism as modifier of escalation of

Platt, J. (1973). Social traps. American Psychologist, 28(8), 641651.

Rice, M. T. (2010). Escalation of commitment behaviour: A critical, prescriptive historiography

Staw, B. M. (1981). The escalation of commitment to a course of action. Academy of

Tyebjee, T. T. (1987). Behavioral biases in new product forecasting. International Journal of

Vroom, V.H. (1964). Work and motivation. Oxford, England: Wiley.

Werner G. Meyer is a project management consultant specializing in maturity assessments and

2017 Project Management Institute, Inc. USA

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