Cognitive Biases III: The Sunk Cost Bias

by Paul Lohnes, MBA, PMP
Published in the Project Post-Gazette, Issue 2014-01,  Project Post-Gazette

Continuing our series on cognitive biases that can impact your performance as either a project manager (PM) or business analyst (BA) from our December 2013 PPG article where we indicated that the two most prevalent cognitive biases that PM or BA are susceptible to are:

  • The confirmation bias, and
  • The sunk cost bias.

The confirmation bias is the mental blockage of external information that lies against what we accept as truth or at least most probable. PM and BA exhibiting this bias seek to limit their intake or unconsciously devalue information that does not align with their current beliefs or assumptions. This is especially true when a PM or BA has been working on a specific project for a significant amount of time on which they have made many decisions and have a history of both successes and failures. Such ‘old hats’ on the project are very likely to listen to those or accept input from sources that align with these decisions while dismissing new information or data that does not verify these outcomes or results. While some skepticism is healthy when it morphs into a blind attachment to past knowledge or beliefs even in the face of disproving facts, the professional has come under the spell of the confirmation bias. We have already discussed this bias and showed a couple of techniques for reducing its impact on your decisions.

Remember, however, as humans, you will never be totally free of cognitive biases, but you can reveal their existence whereupon you can begin using techniques to limit how biases impact your decision making. If you do not take positive actions to uncover possible biases in your decisions you will simply never realize that you are making less than optimal decisions as well as not knowing why.

Our research and experience has provided both scholarly and empirical data that the next bias to which PM and BA are very susceptible and one of the most difficult biases to deal with as humans is the sunk cost or the ‘overly optimistic probability bias’ as the academics refer to parts of this mental heuristic. The sunk cost bias has been studied by many researchers including the Economics Nobel Prize winner, Daniel Kahneman, and Amos Tversky.

The sunk cost bias refers to the tendency of decision makers to increase or compound commitments (money, time, or resources) to a previous course of action in which they have already invested a considerable amount of like assets. In other words, you are more likely to continue to add additional resources to a previous commitment regardless of current outcomes. Also, in some research [Arkes, Blumer, Hutzel, Staw, Hoang and Fox] it shows that those that are experiencing negative results from previous decision commitments are even more likely to add more resources to such operations in an attempt to justify those earlier decisions. This is quite a laughable condition when we are studying others and their behavior; it is entirely another matter when we find ourselves caught up in the same actions of compounding ‘good money after bad.’ Cognitive biases are just that – biases that are easy to spot in others, but very difficult to discover in ourselves.

The sunk cost bias was also offered as one of the contributions to the now famous 1996 Mount Everest summit disaster in May of that year where several teams suffered devastating outcomes from their failed ascent on the world’s highest peak. Eight (8) team members including the two team leaders died on the south face of the mountain in a series of events and decisions that have been the source of books, movies, and investigations.

In the book, “Into Thin Air” by Jon Krakauer of the ill-fated summit attempts by the two teams many possibilities of the causes for the tragedy were offered, but one indicated that the sunk cost may have been at the heart of the feelings that permeated the guides and team members themselves leading to their subsequent deaths. While no one single cause can be attributed to the very complex set of parameters and conditions, in one interview with few survivors of the South face summit assault teams, they said they had overheard one of the eight team members that subsequently lost his life in the failed attempt at the summit to have said, “I’ve put too much of myself into this mountain to quit now, without giving it everything I’ve got.” Another experienced high altitude mountain guide, Guy Cotter, once also described a condition now known as ‘summit fever’ where he said, “It’s very difficult to turn someone around high on the mountain. If a client sees that the summit is close and they’re dead set on getting there, they’re going to laugh in your face and keep going.” The sunk cost alive and well but with catastrophic results.

On projects, PM and BA operating under the sunk cost bias are going to be very difficult to ‘turn around’ from making additional investments in a project that is now exhibiting failure conditions. This is primarily the reason that we are brought in as project whisperers from the outside since getting objectivity from within the project or organization is difficult due to this bias in operation. As you probably have heard and maybe even experienced it yourself, the sunk cost bias is the primary reason that those with gambling addictions give for their aberrant behavior when they are being honest in recovery. The sunk cost bias can creep on you very slowly as you invest more and more of yourself in a project until you have too much invested to quit now. “Just one more bet and I will get it all back, just watch me.”

How can you determine if you are under the spell of the sunk cost bias? How do you determine if someone else is suffering from this cognitive bias?

First, the best way to guard against the sunk cost bias is the recording of your past decision making history and mental state you were in when you made those decisions. Keeping a professional log is the best method we have found that helps to protect us against falling into this bias. We record all decisions and the conditions (inputs, outcomes, and metrics for measurement) of our decisions so that if they do not work out we can go back and research the reasons for making the decision and how to prevent the same outcome in the future. This objective willingness to look bad outcomes in the face is probably the most powerful technique to prevent the onset of the sunk cost bias since you are not becoming invested in the past decision and the need to support it with future decisions which is one of the symptoms of the sunk cost bias in operation. By dissecting bad outcomes, you break that ownership of failure – a characteristic that is so common in those that exhibit the sunk cost effect in their decision making.

Secondly, another technique is the use of peer-reviews where an associate is asked to review your previous actions, outcomes, and current planning in order to provide an objective perspective on your behavior and actions that may have become hidden and opaque to your discernment. Many organizations require peer-reviews at different points during the project’s life cycle, but most do not, and many PM and BA do not seek out peer-reviews for many reasons ranging from confidence to superiority feelings.

Finally, as with all cognitive biases, their identification and reduction takes commitment and effort with a true sense of self-improvement being more important than one’s ego or pride. Professionals and this is one of the reasons we use this term very carefully in referring to those in the PM and BA discipline is one that has the ability of self-monitoring and almost more relevant, self-correcting behavior in order to improve their future performance. Professionals are never satisfied with their current levels of achievements and are always searching for new techniques and methods that can make them more effective in their chosen disciplines.

Our next article will take on the availability bias and a particular form of it called the recency effect where we tend to place more value on information or data that we can get our hands on more easily or remember more easily which is why the recency effect of this bias causes us to put more value on more recent experiences rather than those farther in the past. The recency effect make nearer objective seem ‘larger than life’ just like your right side car mirror does to the car you just cut off in traffic.


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