During research for my book Vertical Mind (now available at www.verticalmindbook.com) I read Sway by Ori and Rom Brafman, which explores how we behave irrationally in certain situations. Upon reading this book, I reflected on how some of the elements they write about in Sway can be relevant in a rock climbing context. In this article I talk about two of them, loss aversion and commitment.
The authors explain that humans have a very strong repulsion for loss and they give several eye opening examples. The most powerful example of loss aversion that they discussed is from an interview with Jordan Walters of the investment firm Smith Barney. Jordan explained how a few years ago he was helping a chap who had the good fortune of selling the biotechnology company that he had started, and who was set to be able to retire to Martha’s Vinyard, buy a yacht, whatever…he had it made. Jordan advised that his client sell some of the stock that he received in the deal at regular intervals to avoid making poor financial decisions. The client decided that the stock had been flying high and sold only 10% of the stock, for $47 a share, hoping to improve his already enviable financial position.
Shortly after this, the stock price dropped to $42 and Jordan suggested maybe selling another 10% to hedge any further downside. The client said that if the stock went back up to $47 he would sell. The stock then slipped to $38, with the client stating that when it got back to $42 he would sell. Jordan referred to this as “chasing the loss,” which is not uncommon in his world. In the end, the stock ended up at $0.12 a share, so the only remaining asset from the sale of his business was the 10% he initially sold.
The authors told several other stories illustrating this affect including plane crashes and how eggs do not seem to obey the typical price-demand relationship. The force is very powerful and is exacerbated by another irrational behavior they termed commitment. Commitment is when someone gets so committed to a pursuit that they behave irrationally. The authors gave the example of a game that Max Bazerman uses in his negotiation class at the Harvard Business School. Dr. Bazerman explains that the game involves an auction for a $20 bill. The rules of the game are that bidding must be a round dollar amount, the winner gets the $20, and the person who ends in 2nd place with their bid, has to pay whatever they bid to him. He donates any proceeds to charity.
Dr. Bazerman said that the game is pretty predictable, with many bidding wildly up until bids reach the $15 level. The field narrows to the two highest bidders. Much to the surprise of the rest of the class, the bidding continues up, $16, $17, $18, $19…and yes $20. At this point the logical path would be for bidding to stop, with the winner breaking even and the runner up cutting their losses. What happens next is the irrational part…bidding continues up! The record high bid from the class is $240. Unbelievable!
We can see loss aversion and commitment related irrational behavior in climbing situations too. Have you ever know anyone to continue up a route, despite dangerous conditions? One need only recall some of the tragedies on Everest, K2, or other mountains to find an example of this. Have you ever known anyone to continue to work on a project climb for an unproductive amount of time, maybe until an injury resulted? I have personally experienced this.
The Sway authors conclude by stating that avoiding the pitfalls of these common traps involves being able to step back and look at situations with a broad perspective, even consulting others not so close to the situation. Doing so allows us to interrupt the narrow focus thinking that seems to be related to these irrational behaviors. So, if you find yourself in a situation where you could fall into the loss aversion and commitment trap, take a moment and ask yourself these four questions:
– Am I falling into a trap?
– What are logical outcomes if I proceed?
– What are logical outcomes if I do not proceed?
– Who can I ask to get perspective on my decision to proceed or not?
Doing so might help avoid an undesired consequence.