Decision Making: The Sunk-Cost Trap

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 recognize them. 

While we cannot entirely rid ourselves of them, we can learn to understand the traps and compensate for them.

The Sunk-Cost Trap

We tend to make choices in ways that justify past decisions, even when the latter no longer seem 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.