In the competitive world of business, it might be easy to get carried away. Associate Professor Fredrik Odegaard calls this the “paradox of escalation,” as often happens to bidders during auctions. It’s when competing organizations escalate their bids in order to reduce their losses.
Odegaard’s research explains how random shocks or events that can happen in business can help to deescalate the conflict.
“If you don’t get a shock, your incentives are always to continue, because rather than accept your sunk cost you’ll always want to raise it one more increment, in order to get that grand prize,” he said.
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