The dollar auction helps us to grasp how we can become financially over- committed in real life. Individuals and groups can become entrapped by their own initial commitments as they try to justify or salvage investments they have already made. In business, the economic conditions in which an investment is made sometimes justify continued commitment. When there is a reasonable likelihood of success and when potential earnings are high relative to the additional necessary costs, it may pay to persist. With certain long- term investments, sizable up-front costs have to be endured before the delayed benefits are likely to materialize. As in the dollar auction, however, entrapment may occur when economic conditions do not provide a basis for optimism.
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Why do investors, business executives, and others losing money on a failing investment so often “hang tough,” only to sink deeper and deeper? Why do supervisors who recommend that a worker be hired later overrate that worker’s job performance compared with others in the company who were not involved in the hiring? Why do National Basketball Association teams continue to start players who were selected as top draft picks even though they have not performed well?