“We have to move forward with this decision,…..we’ve already spent the money!”
The escalation of commitment (or the related sunk-cost fallacy) is when we behave completely irrationally and continue to pursue something that delivers increasingly negative outcomes (monetarily, psychologically, emotionally, etc.) instead of altering course.
“Yeah, Mark, this doesn’t happen to me. I’m totally rational and if I can see that it’s producing negative results, I change my course of action.”
If you just thought that, then you’re not thinking through the history of your own behavior deeply enough. How many times have you purchased a ticket to go to an event or a concert and even though you didn’t want to go on the event day, you decided to go because you’d already bought the ticket? Or, what about the time when you hired a consultant to help with a software implementation, and even though you started getting negative results, you decided to follow through with it because you’d already spent so much money? How many of us stick with the same partner for years, even though they may not be right for us, because we have history together?
Don’t fret. It happens to all of us.
For whatever reason, we often feel like we get past a “point of no return” with our decisions and so we “throw good money after bad” despite new evidence that suggests that the cost continuing the course of action outweighs the benefits of abandoning the course of action.
A cute but dangerous saying my grandmother used to say was, “In for a penny, in for a pound.” Suggesting that if you put in a penny, you may as well put in a pound.
I loved my granny, but THIS IS INSANE!
Now we may have made the original decision for all the right reasons, but if new evidence suggests that continuing with the course of action is foolish, then why do we do it?
Sociologists and behavioral economists have come up with a few reasons for this. The one that is most clearly recognizable is ‘self-justification’. Research by Huning and Thomson suggests that managers have a habit of following information that is aligned to their past behavior and other leader’s past behavior to create consistency for current and future decisions.
Why? “Because we’ve always done it this way!”
So how do we stop this type of behavior?
This may sound like a cop out answer, but awareness is often the most effective means of avoidance. Now that you know that this behavior exists, you need to train yourself to be self-aware enough to catch yourself. Often the “point of no return” is a self created illusion that tells you that it’s ‘easier’ to continue the course of action than make a change. And, sometimes that’s true, sometimes it is easier,…..right now. But the future ‘ease’ of continuing a decision that aligns with a course of action that is no longer valid becomes increasingly more difficult and costly. The trick is to nip it in the bud.
“Okay, interesting, but what does this have to do with negotiation?”
Negotiation and decision quality are like really close cousins. A good negotiation cannot exist without good decision quality. Otherwise you’d be negotiating a deal/contract with faulty decision making and putting yourself or the company into a worse place than when you started.
“Is that like incomplete data?”
No. Stay with me. Incomplete data is one thing that we have to live with all the time, but just because it’s incomplete, doesn’t mean it’s wrong. However, ignoring data that fully contradicts a previous decision (and says that you should abandon your course of action) MUST to be taken into account and needs to affect how we negotiate (or whether we continue to negotiate at all).
Negotiations, and all of the inputs within negotiations, are not static. They are subject to changes in data, decisions, market, behavior, results, information, alternatives, economics, etc.
So if new data suggests that it is completely irrational to continue negotiating something that delivers increasingly negative outcomes, you MUST seriously evaluate the decision making paradigm you’re in.
Further, if you’re getting direction from someone else to continue negotiating, you MUST (and this is where it sometimes becomes a tough internal conversation) ask “why”. Challenge the decisions that are being made by asking laser focused open-ended and probing questions that will help you to understand their position and their interests. It may be that the party directing you does not have the understanding or the data or the cost/benefit analysis of continuing/not continuing. Don’t allow the poor decision making of others (or your own) to affect your negotiations
Don’t continue to escalate your commitment (in the face of data that suggests the opposite) because you’ve already spent so much time, money, energy, emotions on that course action.