Idea of the Week: Commitment Bias

Behavioural economics and psychology are treasures of science. Geniuses like Kahneman or Tversky who endured wars in Israel and academic wars elsewhere, they achieved to unravel the entangled ideas about “Rationality” that people in the Northern Hemisphere had. I want to focus on a particular idea in Behavioural economics: the more we become invested in our own ideas, the more difficult it is to divest from ourselves and our beliefs. Aka. the sunk cost fallacy, the escalation of commitment or the commitment bias.

My thesis is that commitment bias is one of the major causes of political inefficiencies in the so-called “Western democracies”. Politicians assume position X and won’t change. Behavioural scientists have proved that the more time humans spend sitting with their ideas, the more difficult it will be to change and divest ourselves from these notions.

Why doesn’t the US divest from fossil fuels and become 80% reliable on renewable energy? It would create millions of jobs. Such change simply requires approving a new law enforcing a pro fossil fuel energy policy. As Denmark and other countries did. The reason why policy makers in Washington don’t do that is due to the sunk cost fallacy. In other words, you are so invested in your own sh**, you can’t even begin to grasp that the grass is greener on the other side.

The failure of businesses and policy makers to swiftly change and adapt to new conditions and integrate these new premises into the decision-making process is due to this heuristic and others. The barrier between incremental change and deadly paralysis is dependant on a few decisionmakers who have the duty to embody change and real benefit/cost analysis, either at a board room, a congress or a startup office.

The question therefore is whether a bipartisan system that encourges immobilism rather than swift and well-informed policy changes is useful for the good of our peoples. It is thus that smaller technocractic governments like Singapore seem to present a better alternative option. A government that is devoid of ideology or, in other words, uses all ideologies as one of the many sources for policy-making, rather than a centralised dogma from which fragilites and blind spots arise.

Startup founders and entrepreneurs also suffer from this heuristic. They have a hard time pivoting and divesting themselves from their own ideas. It is a fine balance between focus and expansion. Still, the tech & startup industries require a higher degree of skin in the game and that is a competitive advantage compared to governments and monolithic enterprises. It offers high-level rewards for those who, like many of us, are starting from the bottom and got nothing or few to loose. It is the reason the visionaries and the hard-working techies collide to create innovation and change in the world.

Some politicians or legacy business managers think that the solution to this is to pretend to like startups and spark PR campaigns about it. They are wrong. They need skunkworks. They need real disruption to arise from within their ranks. Again, as I said in my previous article, it is necessary to kill the monoculture of thought. The monoculture of thought allows all these innate biases to thrive and create even more fragile systems.

The solution is to snap the policy-makers and business managers chairs and let them fall on their bums. A standing human being will be forced to walk instead of sitting in comfortable long-held opinions. The human being will be forced to cross the jungle, amidst tigers and snakes, with the skin in the game. Then the explorers, the hustlers and the visionaries will join the quest.

Here’s some food for thought.

by EJT