Facing the Mirror: Looking Good or Doing Good?
Barry Staw is a world-renowned organizational behavior professor at the University of California at
Berkeley, and he has spent his career trying to understand why people make bad decisions in
organizations. In an ingenious study, Staw and Ha Hoang collected data on all 240-plus players who
were picked in the first two rounds of the NBA draft between 1980 and 1986, in hopes of seeing what
effect draft position had on a player’s career. They measured each player’s performance with a series
of different metrics: scoring (points per minute, field goal percentage, and free throw percentage),
toughness (rebounds and blocks per minute), and quickness (assists and steals per minute). Staw and
Hoang controlled for each player’s performance on all of these metrics, as well as for the player’s
injuries and illnesses, whether the player was a guard, forward, or center, and the quality of the
player’s team based on win/loss records. Then they examined how much time on the court the players
received and how long their teams kept them before trading them, to see if teams made the mistake of
overinvesting in players just because they drafted them early.
The results produced a devastating conclusion: teams couldn’t let go of their big bets. They stuck
with the players whom they drafted early, giving them more playing time and refusing to trade them
even if they played poorly. After taking performance out of the equation, players who were drafted
earlier still spent more minutes on the court and were less likely to be traded. For every slot higher in
the draft, players were given an average of twenty-two more minutes in their second season, and their
teams were still investing more in them by their fifth season, when each draft slot higher accounted
for eleven more minutes on the court. And for every slot higher in the draft, players were 3 percent
less likely to be traded.
This study is a classic case of what Staw calls escalation of commitment to a losing course of
action. Over the past four decades, extensive research led by Staw shows that once people make an
initial investment of time, energy, or resources, when it goes sour, they’re at risk for increasing their
investment. Gamblers in the hole believe that if they just play one more hand of poker, they’ll be able
to recover their losses or even win big. Struggling entrepreneurs think that if they just give their start-
ups a little more sweat, they can turn it around. When an investment doesn’t pay off, even if the
expected value is negative, we invest more.
Economists explain this behavior using a concept known as the “sunk cost fallacy”: when
estimating the value of a future investment, we have trouble ignoring what we’ve already invested in
the past. Sunk costs are part of the story, but new research shows that other factors matter more. To
figure out why and when escalation of commitment happens, researchers at Michigan State University
analyzed 166 different studies. Sunk costs do have a small effect—decision makers are biased in
favor of their previous investments—but three other factors are more powerful. One is anticipated
regret: will I be sorry that I didn’t give this another chance? The second is project completion: if I
keep investing, I can finish the project. But the single most powerful factor is ego threat: if I don’t
keep investing, I’ll look and feel like a fool. In response to ego threat, people invest more, hoping to
turn the project into a success so they can prove to others—and themselves—that they were right all
along.
In one study led by Staw, when California bank customers defaulted on loans, the managers who
originally funded the loans struggled to let go and write off the losses. “Bankers who have been