You are the CEO of an aviation company, and you have a budget of $10 million with which to develop a plane that is not detectable by radar. After spending months, and $9 million, your competitor announces they’ve scooped you and made the plane. Not only did it cost less, but it performs better. Now, what do you do? Do you use the remaining $1 million to finish the project and release an inferior plane, or do you cut your losses and reinvest somewhere else?
Researchers from Northwestern University posed this problem to two groups: those with “promotion” focus and those with “prevention” focus. Before getting this scenario, the promotion focus group was asked to write about their “personal hopes and aspirations,” while the prevention focus group had to write about their “duties and obligations.” The study found that those with a prevention mindset – those who were focused on avoiding loss – continued with the plane 80 percent of the time. Of the promotion focus group – or those who were concentrating on gaining instead of losing – less than 60 percent opted to continue.
What does this tell us about WATNA? It’s largely in our mindset. Sometimes, it makes more sense to cut our losses and move on. Our worst alternative to issuing the best, lowest-cost plane first is saying $9 million has been wasted; let’s do something else with the remaining $1 million. And that’s better than continuing to throw time, money, and energy into something that is not worth it. This is exactly what Dr. Kahneman writes about in his book Thinking Fast and Slow. We must be wary of the simple mistakes associated with our human propensity for loss aversion.
Dr. Heidi Grant Halvorson writes, “When we see our goals in terms of what we can gain, rather than what we might lose, we are more likely to see a doomed endeavor for what it is, and try to make the most of a bad situation.” In negotiations and mediation, the goal is to arrive at a mutually beneficial resolution: but sometimes, we have to redefine what “beneficial” is and consider that our WATNA may not be ideal, but it may be good enough to extract us from the situation so we can reinvest ourselves elsewhere.
