Escalation of commitment to a failing course of action is an enduring problem that remains central to the study of managerial behavior. Prior research suggests that escalation behavior results when decision makers choose to ignore negative feedback concerning the viability of a previously chosen course of action. Previous work has also suggested that certain cognitive biases might promote escalation behavior, but there has been little attempt to explore how biases other than framing affect escalation. In this article, we explore the extent to which decision makers actually perceive negative feedback as indicative of a problem and how this influences their decision to escalate. Although problem recognition and cognitive biases have been intensively studied individually, little is known about their effect on escalation behavior. In this research, we construct and test an escalation decision model that incorporates both problem recognition and two cognitive biases: selective perception and illusion of control. Our results revealed a significant inverse relationship between problem recognition and escalation. Furthermore, selective perception and illusion of control were found to significantly affect both problem recognition and escalation. The implications of these findings for research and practice are discussed. To improve problem recognition and reduce the incidence of escalation, practicing managers should implement modern project management practices that can help to identify and highlight potential problems while guarding against these two key cognitive biases that promote the behavior. © 2007, Decision Sciences Institute.