Before making an important decision, prudent managers evaluate the situations confronting them — and often fall into one of the eight traps of faulty thinking.
Researchers have identified a series of flaws in the way we think when making decisions. They are hardwired into our thinking process, so we often fail to recognise them.
While we cannot entirely rid ourselves of them, we can learn to understand the traps and compensate for them.
Last week we looked at the “trap” of the ‘Anchor’ and this week we will look at two other traps leading to faulty thinking and decision-making, namely – ‘status quo’ and ‘sunk cost’.
Remember, you have an edge if you can establish a personal connection with those you are negotiating with. Connect emotionally and intellectually so the other person will like and trust you.
Status-Quo
We are predisposed to perpetuating the status quo. Deep within our psyches, we are self-protective and risk-aversive.
The Antidote
Don’t maintain the status quo just because it’s comfortable. Do so only when it turns out to be the best choice.
• Remind yourself of your objectives. Examine how they would be served by the status quo.
• Never think of the status quo as your only alternative. Identify other options.
• Ask yourself: Would I choose the status quo if it weren’t so?
Sunk Cost
Sunk costs, are retrospective (past) costs that have already been incurred and cannot be recovered. Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken. We tend to make choices in ways that justify past decisions, even when the latter no longer seems valid. We know rationally that sunk costs are irrelevant to present decisions, but they nevertheless lead to inappropriate choices. This frequently occurs when we’re unwilling, consciously or not, to admit a mistake.
The Antidote
• Seek feedback from those who were uninvolved in the earlier decision.
• Examine why admitting a past mistake distresses you. Even the best and most experienced managers are not immune to errors in judgment.
• Be on the lookout for the influence of sunk-cost biases in subordinates’ decisions and recommendations.
• Don’t cultivate a failure-fearing culture that leads employees to perpetuate and cover up mistakes.
Business Tips
Decision Making Scenarios – Status Quo and Sunk Costs
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- Parent Category: Business Tips
- Category: Management
