“When you find yourself in a hole, the best thing you can do is stop digging.”
— Warren Buffet
I follow the baseball off-season trades and free agent activity; it is great fun for me, for such is what hope is made of, for Cubs fans…
So every year, come February, I do the internet thing and get a couple of tickets for a mid-summer Cubs game. Then April comes; when, you know, they actually start playing real games.
It doesn’t take long for my enthusiasm to wane. I mean, as of this post, it’s not yet May, we’re less than 25 games into a 162 game season, and the Cubs are 6 games under 500 and tied for last place …
And I have tickets for an August game.
If this year is true to form I’ll spend the next couple of months agonizing over the decision of whether I should still go to the game. The tickets cost $120; that cost is unrecoverable. If I go, I’ll burn a vacation day and sink another $100 on gas, parking, food, and beverages, to see bad baseball, up close and personal…
Now some of you may relate to the feeling that, despite the bad baseball, the rush of experiencing the magical ambiance of Wrigley Field might be sufficient pull. There is some truth to this…
But I suspect that it is not only the nostalgia of that ol’ ball park that keeps me going every year; it is the fact that I cannot bring myself to cut my losses, write off the $120, and carry on, because making that choice clearly signals that I made a bad decision to buy the tickets in the first place.
Can’t have that!
My quandry with my Cubs tickets is an example of the decision making trap called sunk costs — when previous investments of time or money become unrecoverable and we know that those “sunk costs” are irrelevant to making a current decision, but those costs prey on our minds and influence us to make additional bad decisions, resulting in further investments of time and/or money.
In other words, we seem to have a deep-seated bias to make choices in a way that justifies our past choices.
Mr. Buffet would say we have a predilection to keep digging.
My suspicion is that most of us have fallen into this trap, and that many of us keep falling into this trap. Yes, I am one of the many…
- We may have refused to sell a stock at a loss, thereby missing the opportunity to invest in a more promising company. (I feel your pain. This one’s fresh for me, too, and way more consequential than my Cubs tickets.)
- We may have invested heavily into improving the performance of an employee whom we know we shouldn’t have hired in the first place.
- We may plan initiative after initiative and implement change after change to improve the performance of a business acquisition or organizational structure change that we simply, in retrospect, should not have pursued.
You can relate, yes? You have your own sunk cost examples, yes? C’mon, be brave, share ’em; this blog is a safe zone … 🙂
Mr. Buffet: It is very, very hard to stop digging!
I think it is this decision making trap that is underneath why it is sometimes critically necessary to provoke a change in leadership.
A business decision that is ultimately judged as a bad decision is very visible, with serious consequences, both practical and psychological. The strategy-of-choice is often to escalate commitment and resources, throwing good money after bad, and compounding the problem.
A new leader will have unclouded eyes and unencumbered thinking. It is often why we see major change soon after a new leader is named. They didn’t dig the holes…
Another solution to this trap is to design a structure or process mechanism whereby future assessments of viability are not owned by the original decision makers. I will soon be implementing a variation of this strategy, relating to my investment portfolio…
The lesson here is not that we should avoid making bad decisions. When we’re making decisions, we will inevitably make some bad ones. The lesson is to admit the mistake, not throw good money (and time and energy) after bad; instead cut your losses, and go forward.
In other words stop digging.
But it is very, very hard!
At least for me, since, yes, I will be at the Cubs game in August … but just you wait until next year!
This post draws from a Harvard Business Review article The Hidden Traps of Decision Making.