When you consider the immense amount of time and resources a company puts into hiring new employees, it shows the importance of the hiring process. It is no wonder that the existence of numerous risks during this process leads to inappropriate decisions and outcomes. These link a well-known effect in 'decision' literature to the field of human resources. This effect asks the question, "Do you already have too much invested to quit?" In other words, do you persist with your initial decision just because you've already spent too much effort, time or money on trying to make it work-your "sunk cost?"

The so called "sunk cost effect" is well-known in decision-making literature. However, does it also apply to processes concerning human resources? A recently conducted study working with 30 high level managers regarding the "sunk cost effect" showed that it clearly does.

What are the "Sunk Costs" in Hiring?
In an organizational context, commitment toward a company, its products and employees is widely accepted as a vital factor of success. This commitment facilitates motivation in critical situations and fosters high performance during challenging projects. However, there can be a darker side of commitment, which leads to negative outcomes. In research, it is referred to as the "escalation of commitment" (e.g. Whyte, 1986, 1993; Staw & Ross, 1989; Staw, 1976; Brockner & Rubin, 1985; Teger, 1980).

Studies show that "escalation of commitment" leads to throwing good money after the bad. This so called "sunk cost effect" (Staw, 1997) focuses on situations where a person or a group of decision makers decide to proceed with a project even though the outcome is in doubt and the investment could be better spent on another project. Instead of focusing on the immediate situation, the decision maker is misled by the money already invested to date. "On the basis of the amount of time and money previously spent, decision makers could become psychologically 'stuck to' an ongoing project" (Moon, 2001). Arkes and Blumer (1985) showed in their experiments that one is more likely to support a specific project or decision the more money one spent on it or the greater the effort already invested.

Investment decisions relating to ongoing projects or decisions on a new product line bare the risks of the "sunk cost effect," but where is the link to human resources? The drivers and root causes for this potentially irrational behavior, as discovered in decision research, also apply in hiring decisions.

As shown in Figure 1, hiring a new employee involves investments. Making a commitment comes with all the possible effects and outcomes described as the "sunk cost effect."

1. Nobody wants to be seen as wasteful (Arkes, 1996). In the process of hiring a new employee, it might be the time and money spent on recruitment agencies, on preparing and running interviews, the input from your colleagues or in simply collating the initial information given to the candidate.
2. Nobody wants to admit that his or her initial decision was wrong. If your initial statement was, "Yes, this candidate will be the next top performer in this department," you may not be comfortable admitting to your peers, I was wrong. It is clear now. This wasn't the right decision." Pride plays into the hand of the "sunk cost effect."
3. Everybody wants to finish what was started (Moon, 2001). If you had the responsibility of hiring a new employee, you wouldn't want to stop halfway through and say, "It's just impossible to find an adequate candidate."

As you can see in the examples, there are a multitude of situations in a hiring process where costs are sunk and possibilities arise that could lead to the "sunk cost effect." Yet is there further evidence?

What Managers Say
In 30 interviews using the critical incident technique (CIT) (Chell, 1998), top managers were asked to speak about projects or situations in which they were stuck with the sunk costs and continued with the original decision instead of reappraising or cutting off the project (Heinz, 2006). Without any specific direction or limitations in choice of their examples, 10 percent of these managers chose critical incidents closely related to human resources or hiring processes.

The introductory quote, from one of the interviewees, shows very clearly that a commitment and an investment in a new employee is a decision process easily disturbed by the risks of the "sunk cost effect." Especially when appointing positions that are more senior, the risk of encountering the "sunk cost effect" tends to increase. More information had to be supplied to the candidate, more time was committed to the selection process, more money may have been spent and more commitment from the management team had to be given to the onboarding of this new employee.

Managers who participated in the study clearly highlighted that the hiring and valuation process was lengthy, not necessarily a successful investment for the company and needed a substantial amount of resources allocated to it. Personal issues, like pride and self-interest, also led to the "false" decision to stick with the original appointment. Finally, the steadfast conviction that they were doing the right thing made the decision makers deaf to other reasons and relevant concerns. However, what can be done to alleviate and avoid these risks?

Disconnection Between Decision Maker and Project Leader is Key
It seems vital that in highly visible and important decisions regarding a new employee, there is a disconnect between the final decision maker and the project leader (see Figure 2).

During the management interviews, it became clear that an external and more neutral approach helps minimize the risk of escalation of commitment and allows the process to be viewed with other, and possibly more rational, eyes. How does it apply to our example of a hiring decision?

In externalizing the hiring process, one can reduce the risk of someone making a "false" decision and having to deal with the consequences of choosing the wrong option. It helps to reduce pride issues because in the initial steps, the decision maker is not fully involved. It is important to clarify the necessary competencies-not only for the decision maker, but also for a "neutral" team, to ensure that the risk is minimized. In the case of an undesirable outcome, the decision maker sticks to his or her initial decision. Finally, and very helpful in reducing the risk of getting stuck with a "sunk cost effect," is the disconnection of decision maker and process leader-the demarcation of responsibilities. Thereby, one can ensure that the original investment won't influence later decisions.

There is no doubt that the culture of a company also plays a vital role. If it is possible to change your mind without being seen as unreliable or being held accountable for such mistakes, this also helps to hinder the emergence of a "sunk cost effect."

In all of these examples on how to avoid the very real risks of the "sunk cost effect," it is vital to ensure that the focus is on the ongoing situation rather than at looking back at previously made commitments and investments. Therefore, it is both easy and highly effective to rely on professional help in the hiring process.

Conclusion
It is clear that the well-known "sunk cost effect" usually found in financial decision making can also be found in decisions related to human resources (e.g., hiring decisions). Especially when decision makers are closely involved in the decision of whom to hire and why, the "sunk cost effect" has an opportunity to establish itself and to spread.

However, we have the opportunity to mitigate some of this risk by separating the responsibilities of 1) conducting the process and 2) making the final decision.

What can you do if you realize that you are already 'stuck' with an inappropriate decision? Simply stand back and introduce a degree of separation. Think, decide and act as if no money, time or effort has already been invested.

References
Arkes, H. R. (1996). The psychology of waste. Journal of Behavioral Decision Making, 9, 213-224.

Arkes, H. R., & Blumer, C. (1985). The psychology of sunk costs. Organisational Behavior and Human Decision Processes, 35, 124-140.

Brockner, J. (1992). The escalation of commitment to a failing course of action: Toward theoretical progress. Academy of Management Review, 17, 39-61.

Chell, E. (1998). Critical Incident Technique. In: G. Symon & C. Cassell (Eds.), Qualitative methods and analysis in organizational research: A practical guide (S. 51-72). London: Sage.

Garland, H., & Conlon, D. E. (1998). Too close to quit: The role of project completion in maintaining commitment. Journal of Applied Social Psychology, 28, 2025-2048.

Heinz, E. (2006). Too much invested to quit?” Überprüfung der ökologischen Validität von wirtschaftspsychologischer Forschung am Beispiel des Sunk-Cost-Effekts. Berlin: Dissertation.de.

Moon, H. (2001). Looking forward and looking back, Integrating completion and sunk-cost effects within an escalation-of-commitment progress decision. Journal of Applied Psychology, 86, 104-113.

Staw, B. M. (1997). The escalation of commitment: An update and appraisal. (In Z. Shapira (Ed.), Organizational decision making (pp. 191-215). New York: Cambridge University Press).

Staw, B. M., & Ross, (1987). Behavior in escalation situations: Antecedents, prototypes, and solutions. In B. M. Staw & L. L. Cummings (Eds.). Research in Organizational Behavior (Vol. 9), (pp. 39-78). Greenwood, CT.: JAI Press.

Teger, A. (1980). Too much invested to quit. New York: Wiley.

Whyte, G. (1993). Escalating commitment in individual and group decision making: A prospect theory approach. Organizational Behavior and Human Decision Processes, 54, 430-455.