Sunk cost bias is one the concepts presented in the World Development Report 2015: Mind, Society and Behaviour. Since I assume many of you do not have the time or the energy to read that report, I will try to give you an apprehensible explanation; and some reasons for why you should know.
In an aid context, sunk cost is when you persist with a project, despite its obvious flaws or absence of results. You, your office or your organization have invested so much money and effort into it that is hard to admit your failures. And the more you have invested, and the more you have lost, the more likely you are to head on; despite knowing that the project is beyond rescue.
Why do we humans do such a thing? Looking at it from the outside it seems rather stupid, to say the least. Especially if we claim ourselves to be well educated and “rational”?
One reason is that we do not want to admit to ourselves, or others, that we have wasted something. We are stuck in the past, and overly optimistic about the future (“ things will be better.”)
I spent years looking for the perfect job as a veterinarian, unwilling to admit I had no passion for medicine. Because the profession was supposed to be the realization of my childhood dream. I had invested years of education with heavy student debts as a result. When I finally admitted that I needed to do something very different, a heavy burden lifted.
It is not hard to find examples from the aid community on projects or programmes where it is easy to presume that sunk cost bias is behind their failure. A World Bank sponsored mining project in Liberia is just one example. The lake Turkana fish processing project funded by the Norwegian government is another.
Fear of Blame
Another reason why we tend to disregard sunk costs is, the fear of blame. No one likes being blamed, and especially if it is unfair. You might even end up being fired. This is a global phenomenon. Daily, you can read stories about politicians, sports coaches or executives; being blamed for some kind of fiasco and having to leave their posts. Before that, they have often tried to conceal their mistakes, blamed others or just practised denial. That is probably, and unfortunately, what most of us would have done in the same situation.
So, what can we do to mitigate waste aversion?
One solution, provided by Robert L. Leahy in Psychology Today is to ask yourself or ask your team some good questions:
- Would we do the same if we could start all over again?
- If we had abandoned this project a month ago or a year ago would we have regretted it now?
- And started to revive it? Why not?
A blaming and shaming culture is typical for a low-trust culture. This is a work environment where information flows sparsely and transparency is low. And as a result, little or no learning takes place.
“Trust is a central dynamic in the overall learning process, and without it, organisations will inevitably move into the process of scapegoating and the search for culpability” [Smith and Elliott, “Moving beyond denial”].
Any mistake, such as a doomed project, is almost never a single individual’s fault. Most often it is a cascade of different decisions and causalities that led to its sad state.
The cure is to contribute to building trust within your organization.
Supporting your co-workers when they make mistakes instead of jumping on the blaming carousel is a good start.
Suggest that what happened is something to learn from. You need to evaluate the whole process, and all those involved; to avoid similar mistakes in the future. Easier said than done, but no excuse for not trying.
My best work experiences have been when I have been part of such a learning culture. Not just that you do not have to be afraid, but it is much more fun and fulfilling trying to improve yourself, and you see the results of that improvement. Instead of being stuck in a vicious, demotivating circle thinking:” isn’t this what we did last year? And failed?” “ Or five years ago? And went down the drain?”