Managemnet – Meng Fang's Blog

Do we need to consider sunk cost?

In accounting, sunk cost should not influence your decision. For example, I have ordered food which tastes so bad, and I need to decide whether or not I order other food. The cost of food is sunk cost. I can either suffer the rest of meal by continuing to eat it, or I could eat something else and enjoy it. According to sunk cost theory, I should stop eating and keep ordering because bad food cannot influence me.

However, I may continue to eat the bad food and never order new food. That is the truth, your decisions are tainted by the emotional investments you accumulate, and the more you invest something the harder it becomes to abandon it.

Another concept which can explain the behavior is that the differences between how people should make decisions and how people actually make decisions. The rational decision-making process is a six-step model: 1. define problems 2. identify the criteria 3. allocate weight to the criteria 4. develop alternatives 5. evaluate the alternatives 6. select the best alternatives. However, there are many limits for a rational decision-making. One judgement shortcut is confirmation bias. People seek out information that reaffirms our past choices, and discount information that contradicts them. As a result, even if individuals have made a wrong decision, but they are likely to collect the views supporting the bad decision.

In the reality, we are not able to not to consider sunk cost.

You can learn a lot about dealing with a loss from a video game called Farmville. Actually, the lasting appeal of Farmville has little to do with fun. To understand why people commit to this game and what it can teach you about the addictive nature of investment, you must first understand how your fear of loss leads to the sunk cost fallacy.

money down the drain project waste rework

references: http://mindyourdecisions.com/blog/2007/08/22/the-idea-of-sunk-costs/

http://youarenotsosmart.com/2011/03/25/the-sunk-cost-fallacy/

OB text book

http://www.braintrustgroup.com/2012/how-sunk-costs-can-be-minimized-with-agile/

Who do you tend to blame when someone makes a mistake?

I learnt an interesting theory in Organizational Behavior class, and this is attribution theory. The theory suggests that when we observe what seems like atypical behavior by an individual, we try to make sense of it. We consider whether the individual is responsible for the behavior( the cause is internal), or whether something outside the individual caused the behavior( the cause is external). People tend to blame someone makes the mistakes caused by internal factors, rather than external ones.

There are three rules to determine whether behavior is internally or externally caused: distinctiveness, consensus and consistency. For example, a student is silent in a comm101 class, she or he does not listen to the teachers and join the class. If the student is always underperforming not only in comm101 class, but also in other classes, professor may think the student is unwilling to join the class, and the cause is internal. There can be a F on his or her grade. However, if the action is unusual, the professor judge it as externally caused. Maybe the student is sick.

Another rule is consensus. If in a comm101 class, all students are late. That means consensus is high. In this case, professors would be expected to give an external attribution perspective like the bus students take is broken, and professors would not blame students. But if other students who take the same route make it to class on time, professors would conclude the cause of lateness was internal for the student( wake up late or does not like the class). As a result, professors will be very angry.

The last rule is consistency. If a student always misses to submit assignments. He or she missed case1, 2 and 3 submissions, professors are likely to attribute the missing to external causes.

Organizational Behavior is really useful and the theories can be applied to many areas. In my opinion, the most magic part of Organizational Behavior is that it can explain some strange behaviors which people even do not notice in lives.

There is a integrated understanding about attribution theory on simply psychology website. The website also give us other famous theories which can be used to explain individuals’ behaviors. You may find it is quiet interesting to apply Organizational Behaviors to our daily lives.

references: OB text book

http://www.papermasters.com/attribution-theory.html