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Sunk Cost Effect

In: Business and Management

Submitted By alaysha
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Sunk Cost Effect

The decision to continue towards a goal is a decision that leaders are faced with every day. Many times, that decision is hampered because leaders cannot free themselves from previous decisions they have made and resources they have spent prior to their decision. This is known as the Sunk Cost Effect. According to Arkes and Blumer (1985), the sunk cost effect is “manifested in a greater tendency to continue an endeavour once an investment in money, effort, or time has been made” and this behaviour is based off of the “desire not to appear wasteful”.

Both Hall and Fischer made decisions while falling victim to the sunk cost fallacy. Even though there was a defined time in which the team must turn around and start their descent, both leaders chose to ignore their own rules and continue their ascent well beyond their previously determined turnaround time. Hall was aware of the sunk cost effect and how it could alter good decisions, and pointed this out in the Everest case when he commented on Göran Kropp’s, a young Swedish solo climber, decision to descend.

To turn around that close to the summit… That showed incredibly good judgement on young Göran’s part. I’m impressed – considerably more impressed, actually, than if he’d continued climbing and made it to the top… With enough determination, any bloody idiot can get up this hill. The trick is to get back down alive. (p.9, para 4)

Hall knew how hard of a decision Kropp had to make, considering how much time, money, and effort he had most likely put in, as well as considering that he was only an hour away from the summit.

During the climb to the summit, four clients decided to turn around before reaching the summit. These four clients chose to ignore previous resources spent and made a decision in based on the present details. A fellow client commented on their decision and their

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