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Home » Blog » Angel Di Maria and the sunk cost fallacy in hiring
Angel Di Maria and the sunk cost fallacy in hiring
Published: Mar-26-2015

What do Angel Di Maria and Henrique De Castro have in common- both were bad hiring decisions! - please note I have written hiring decisions not a bad footballer or executive.

Angel Di Maria is one of the best football players of this generation; a perfect foil to the genius of Messi in Argentina he could have won the world-cup for them till a thigh injury ruled him out of the last 2 matches in 2014 . Not surprisingly he was picked up by Manchester United for 99 Million USD as they were trying to rebuild.

Unfortunately his performance with the red devils has been disappointing and it has been sad to see a player of his quality struggle. In-fact Manchester recently looked better in a formation that does not include Di Maria in the starting line up. Why did it take Vaan Gaal ( coach of Manchester United) to come to this conclusion even though early signs all indicated that its not going to work - was it the 99 Million USD price tag, was it the weight of expectations or was it an inability to admit that he took a wrong decision.

If we use the concept of Sunk cost fallacy it was all of the above. So what is Sunk cost fallacy- "a decision to invest additional resources in a losing account when better investments are available" ( Kahneman- Thinking Fast and Slow) . The sunk cost fallacy in hiring decisions becomes more accentuated for the corporate decision maker because of the limited opinions and options available.

On the other hand everyone calls Henrique De Castro; Marissa Mayers 109 Million USD mistake, but I think she deserves a pat on the back for calling out a bad decision faster than most top executives. What would the experts have said if she made the same decision 2 years , no- progress and more money spent later ?

The reason a star player does not perform in your team can be many- from culture, politics, blow-back from other "star" players , lack of resources or work style mismatch with the leadership; but that does not mean that he/she does not have potential, it is just a case of bad- fitment and I have seen countless executives throwing more money and resources after a bad hiring decision as they are unwilling to admit or realize that they have made one. Usually these decisions end-up harming both the organisation, and the person who was hired ( unless you are Castro and can walk away with 109 Million ;)

How do you reduce the sunk cost fallacy in hiring:

  • Expect & accept bad decisions in hiring. Until analytics OR something like DNA profiling takes the human element completely out of hiring decisions people will make mistakes.

  • Let the new hire take the call- Zappos lets it new hires walk with 2000 USD if they think they do not fit in .

  • Calculate the cost of continuing with the decision- the algorithmic leader calculates his/her cost of perpetuating a mistake and prefers to take one on the chin rather than a knockout blow later

  • Open communication - is the best antidote. If you let people question and seek reasons behind your decisions , you make better ones in the future!

  • Have a Performance management system which is trustworthy- so that you can compare performance of the new "stars" hired with the rest on similar parameters

  • Find out who makes better hiring decisions and if you track interviewer or panel to performance in the organisation you may just be surprised to find the folks who identify the stars for you

  • Poaching from competition and hoping the star player performs as well is like hiring 1 person from an ensemble of 100 and hoping for the same music !


Omar Farooq
Founder & CEO- AceProHR
Visiting Faculty at MBA HR - University of Delhi

 

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