Limitations to Negotiations: Sunk Costs

Limitations*:

• Risk seeking due to "framing" parameters as loss function  (Prospect theory)
• Poor calibration   (over confidence) in judgment
• Lack of empathy (atrophied perspective)
• Sunk costs driving escalation
• Emotional investment due to early, public "demands" (Loss of face)
• No pain, no gain
• The mythical fixed pie

Sunk Costs

---A Joke---

A man found himself lost upon a vast desert of arid scrub.

Picture from here

As a former Army Ranger he was able to bind his wounds, find water and food, start fires and build shelters.  He lacked for human companionship.  Being a healthy young man there was a certain kind of companionship that he particularly missed.

One day as he was walking out, he found a camel and was able to catch it.  Attempts to use the camel to fill the void for intimate companionship were a failure because the camel simply walked away.  There were no trees large enough to sufficiently restrain the camel.

"You want to do what?

An huge part of a survivor's "tool kit" is the duality of stubbornness in the face if difficulties balanced by the ability to stoically accept the realities of the moment.

After many failed attempts at intimacy with the camel, the Ranger accepted the reality that he would continue to lack that kind of companionship.

Then, one day, while crossing a highway the Ranger noticed a stalled vehicle.  A voluptuous and nubile young woman was standing beside the vehicle and was obviously in distress.  Our hero is able to get the vehicle started. 

The young woman made if very clear that she was willing to do anything to reward the Ranger for saving her life.

After a momentary pause, the Ranger asked the young woman if she would---







---hold his camel.

The tightening spiral of escalation

The purely rational, economic person will abandon a course of action when there is sufficient evidence that an alternative exists that will "deliver the goods" more economically.  Successful people are blessed with a goodly streak of stubborn.  That enables them to persevere in the face of hardship.  Misplaced, it traps them into an ever tightening spiral of escalating commitment to a failing course of action.

Ever increasing expenditures of resources solidifies commitment even as the marginal return becomes negative.  Commitment solidifies even after it becomes clear to everybody else that the one party is moving down an path that is not viable.

There is much opportunity to editorialize about the topic du jour but I will leave it to the reader to make those connections.

The fix?  

Create a vivid picture of what success looks like.  Be able to articulate, in great details, the look and feel of success.  You will not be able to switch trapeze if you are not able to recognize which one goes to safety.

Focus on the task but dribble with your head up.  That is, dribble down court like it all depends on you but keep your eyes open for the clear shot or the open pass.

* Inspired by Heuristics in Negotiation, Limitations to Effective Dispute Resolution by Bazerman and Neale.