Question

Vinita buys a stock assuming that she can make profit out of it. Shortly thereafter, the stock value drops and she loses money. Her financial planner thinks the stock value will drop further and advises her to sell the stock. However, the market value has dropped so much already that Vinita believes it is due to rebound; she doesn't want to sell at the lowest point and lose money. She holds onto the stock, hoping to regain her loss. Instead, she loses more money. This phenomenon is referred to as _________.

Answer 1

Escalation of commitment

Step-by-step explanation

Vinita's action is an example of Escalation of commitment. The term refers to the behavioral pattern in which an individual or group of individual facing increasingly negative outcomes from a decision, action, or investment nevertheless continues the behavior instead of altering course.

Her action of holding onto the stock, hoping to regain her loss which has prove futile as she loses more money shows an Escalation of commitment .

Answer 2

Answer:escalation of commitment.

Explanation:escalation of commitment refers to the irrational behavior of investing additional resources in a failing project. Even though it may seem obvious to outsiders that your business proposal has died, you might use all your time, energy and money to try to save it. Why can they see what you can't? The theory of commitment bias explores this phenomenon.

A prevailing theory about escalation of commitment points to our desire to be judged positively by others as a possible cause for this phenomenon. We don't want to admit that we made a poor decision, wasted our time or otherwise seem incompetent and incapable. We value routine and consistency, and it's easier to cling to these factors than to abandon ship.