Attempting to summit Mount Everest is one of the most exhilarating yet dangerous feats in the world, a statement evidenced by the tragic events of May 10th and 11th in 1996 where five climbers from two teams died including two highly experienced team leaders. The disaster was one of the deadliest in the history of climbing Everest and gained wide publicity as several survivors went on to write memoirs of their individual experience, including Jon Krakauer’s best-selling “Into Thin Air.” The event raised questions about the commercialization of the Everest climb, and in Michael Roberto’s 2002 research paper on the disaster “Lessons From Everest: The Interaction of Cognitive Bias, Psychological Safety, and System Complexity” he identified three key cognitive biases that influenced the decision-making of the climbers.
A cognitive bias is a systematic error in thinking that affects the decisions and judgments that people make. As individuals, we create our own subjective reality based on our perceptions and therefore often act based on our own construction of reality, not what is objectively in front of us. In looking at the cognitive biases the mountaineers of Everest faced on that fateful climb, we can also identify how similar failures can occur in the business world and prevent them from occurring in our own endeavors.
In its simplest terms, a sunk cost is a cost, whether that be time, money, or effort, that cannot be recovered. Logically, one would know that because the costs cannot be recovered they should no longer be a factor in any future decisions. However, one can fall into the cognitive bias of continuing a behavior or endeavor through factoring in that which they had previously invested. It is likely that you have experienced this in your own daily life, such as going to a concert even though you have an important meeting the next morning because you already purchased the ticket or ordering too much food and then overeating to “get your money’s worth”. We are hardwired to consider objectively irrelevant costs into our decision-making.
As described by Roberto, on May 10th the Everest climbers were making a final push for the summit, a trek that takes climbers around eighteen hours to complete. As a result, they leave Camp IV in the early hours of the morning so they have the ability to summit the mountain and return before darkness sets in, which is extremely dangerous. The two expedition leaders, Rob Hall and Scott Fischer, were both highly experienced climbers who set a hard turn-around time of two o’clock in the afternoon as a safety precaution. However, when two o’clock rolled around they had not yet reached the summit, and so the leaders as well as some of the climbers decided to continue on instead of turning around at the preordained time. Rather than proceed in the most logical course of action — leaving the summit at the previously determined time to ensure the safest return — the climbers factored in the incredible time, effort, and money they had expended to summit Mount Everest which they used to justify their decision to continue to climb. This proved to be a bad decision, as inclement weather moved in preventing them from reaching safety and ultimately costing some their lives.
No matter your experience or expertise, Roberto’s research clearly shows that nobody is immune to decision-making biases. Failure to ignore sunk costs is a phenomenon that can play out in business often. For example, within the film industry if a new movie is found by a market research company to have a more narrow audience than previously expected, the studio might decide to up their advertising budget considerably in an attempt to avoid losing profits on the upcoming film. However, it is most likely that this will create even more losses rather than mitigate the damage. Sunk cost dilemmas are unavoidable, bound to happen in business even if one budgets for the more foreseeable ones in advance. When running into the potential for a sunk cost, awareness of the cognitive bias is the first step in doing our due diligence as leaders to figure out if it’s better to stick with the original endeavor or cut your losses.
Recency effect bias is the tendency to place more weight on recent events than earlier ones. Someone who is showing a recency bias would skew their perceived future probabilities based on memorable past events rather than facts and statistics as a whole. One common example of this is the idea of shark attacks. Statistically, shark attacks are significantly rare, but the horrific nature of them when they do occur lends them to weigh heavily in the memory of those who hear about it. Therefore, if there have been headlines of a shark attack recently you may irrationally feel a fear of the water, overestimating in your own mind the probability that it will occur to you.
When the Mount Everest expedition leaders were deciding whether to turn back or continue on when the two o’clock turnaround point hit, they were negatively influenced by their own recency bias. There is always a potential at the high altitudes of the mountain for major storms to occur that generate high winds, low visibility, and sub-zero temperatures, but for the past few years leading up to this particular expedition it was rare to see these conditions during the peak climbing season. However, in looking at a larger subset of data this was a significant departure from normal weather patterns for the mountain, and because Hall and Fischer had previously had success leading climbers to the summit in the recent years before they reasoned the weather would follow suit as they had experienced it previously. However, in looking at historic attempts to summit the mountain storms played a significant factor in the over 150 deaths that have occurred on the mountain. The leaders failed to take into account this data and instead based their decision on climbs they had personally done in the recent years, which had anomalously fair weather conditions.
Within the business world, recency bias can often occur when observing the economic cycle and its four phases, expansion, peak, contraction, and trough. In expansion, the economy is experiencing rapid growth, low interest rates, and increases in production until growth hits its maximum rate. This is the peak of the cycle, which inevitably creates imbalances in the economy that can only be corrected through contraction. In the contraction phase growth slows down, resulting in a fall in employment and price stagnation, until the trough of the cycle is reached when the economy hits its lowest point and growth is recovered. If one were looking at the United States stock market only based on the past decade, they would see a robust ten-year performance of their stocks. However, one aware of recency bias would realize that this simply reflects that we are still in the expansion period of the economic cycle, and it is better to make long-term decisions based on a broader historical perspective of the market.
Recency bias can contribute itself to one of the most common cognitive biases — overconfidence. Overconfidence bias is the tendency to hold an inaccurate assessment of our skills, intellect, or talent. In short it’s a belief driven by ego that we’re better than we actually are. A prime example of this is the fact that in one study, 93 percent of American drivers claimed to be better than the median, which is statistically impossible. Overconfidence bias has also been linked to some of the biggest disasters in modern history including the sinking of the Titanic, the nuclear accident in Chernobyl, the loss of the Challenger and Columbia space shuttles, and even the subprime mortgage crisis and subsequent recession of 2008.
In a way, it was reasonable for both Fischer and Hall to hold overconfidence. Widely known as the most challenging mountain to summit in the world, it would be difficult to do so once — let alone on multiple occasions as both expedition leaders had done — without a degree of overconfidence in your abilities to weather the exhaustion, dehydration, and lack of oxygen, but that also proved to be their undoing. Hall had led dozens of climbers up the summit in his previous four trips, and Krakauer even noted that he had expressed the notion that a disaster would inevitably occur for some team on Everest, but was more concerned with the idea that his team would be called upon to rescue them, not that it could be his own expedition team that would experience it. His overconfidence prevented him from seeing that his team could likely be the ones to fail, again contributing to the fateful decision to abate the previously set two o’clock rule.
Overconfidence has the tendency to make us less than appropriately cautious, often stemming from an illusion of knowledge or control. As leaders, this can be one of the more difficult cognitive biases we face because having confidence is one of the most important facets of good leadership. However, what we should be truly striving for is the “Goldilocks zone of confidence” finding a middle ground where rational beliefs meet reality. Far from being equivalent to mediocrity, in walking the narrow path between insecurity and overconfidence we simultaneously show courage and intellectual humility.
Good leadership requires an ability to take one’s own ego out of the equation.