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← Sunk Costs and Expensive Beliefs

Pete H's Avatar Jump to comment 1 by Pete H

I think that cognitive psychology is really a subset of social psychology. So analytic thinking is usually trumped by social influences. In capital investment decisions Warren Buffet and Charlie Munger claim that virtually all business managers operate under what the call 'the management imperative'. Which basically means that most management decisions (as an agent for the real investors and owners) are made on the short cut basis of unconsciously estimating what other people would think about the decision, or what other people tend to be doing in a similar situation, rather than establishing the merits of the particular situation. And once a poor choice is made too quickly then unconscious drivers towards commitment and consistency with previous decisions take over. The type of person that people accept as a leader is also a factor. Typically a tall, bulky, aggressive, and extremely dominant older male with silver hair. A leader who appears inconsistent, or who hesitates, either to establish more information or to process existing information seek criticism and opinions etc. is not likely to long retain support as a leader. Leaders are expected to already know and to act decisively - i.e. make a rapid and ill-informed decision and present the illusion of confidence. Something that's often easier in business and government when it's someone else's money at stake.) Social factors like commitment and consistency biases are likely to be more relevant when the sunk cost is actually someone else's sunk cost, which one has sunk while acting as a agent, and for which one gets paid handsomely regardless of any lack of return on investment.

Sun, 01 Jul 2012 20:40:14 UTC | #948407