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financial sense. Motorola spun off Iridium as a separate company in 1991. It took
researchers 15 years to develop the product from idea to market release. However, in
the 1990s, the landscape for cell phone technology was dramatically different from
the 1980s, and the widespread cell phone coverage around the world eliminated a

large base of the projected customer base for Iridium. Had they been paying attention
to these developments, the decision makers would probably have abandoned the
project at some point in the early 1990s. Instead, they released the Iridium phone to
the market in 1998. The phone cost $3,000 and it was literally the size of a brick.
Moreover, it was not possible to use the phone in moving cars or inside buildings!
Not surprisingly, the launch was a failure and Iridium filed for bankruptcy in
[5]
1999. The company was ultimately purchased for $25 million by a group of
investors (whereas it cost the company $5 billion to develop its product), scaled down
its operations, and modified it for use by the Department of Defense to connect
soldiers in remote areas not served by landlines or cell phones.
Why does escalation of commitment occur? There may be many reasons, but
two are particularly important. First, decision makers may not want to admit that they
were wrong. This may be because of personal pride or being afraid of the
consequences of such an admission. Second, decision makers may incorrectly believe
that spending more time and energy might somehow help them recover their losses.
Effective decision makers avoid escalation of commitment by distinguishing between
when persistence may actually pay off versus when persistence might mean
escalation of commitment. To avoid escalation of commitment, you might consider
having strict turning back points. For example, you might determine up front that you
will not spend more than $500 trying to repair the car and will sell the car when you
reach that point. You might also consider assigning separate decision makers for the
initial buying and subsequent selling decisions. Periodical evaluations of an initially
sound decision to see whether the decision still makes sense is also another way of
preventing escalation of commitment. This becomes particularly important in projects
such as the Iridium where the initial decision is not immediately implemented but
instead needs to go through a lengthy development process. In such cases, it becomes
important to assess the soundness of the initial decision periodically in the face of
changing market conditions. Finally, creating an organizational climate where
individuals do not fear admitting that their initial decision no longer makes economic
sense would go a long way in preventing escalation of commitment, as it could lower
[6]
the regret the decision maker may experience.
Motorola released the Iridium phone to the market in 1998. The phone cost
$3,000 and was literally the size of a brick. This phone now resides at the
Smithsonian Air and Space Museum in Dulles, Virginia.
So far we have focused on how individuals make decisions and how to avoid
decision traps. Next we shift our focus to the group level. There are many similarities
and many differences between individual and group decision making. There are many
factors that influence group dynamics and also affect the group decision-making
process. We will discuss some of them in the next section.

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