Mindfulness meditation could improve decision-making by increasing resistance to the sunk-cost bias, according to a study by INSEAD Research.
People have trouble cutting their losses: They hold on to losing stocks too long and stay in bad relationships. Chief financial officers are susceptible to psychological biases too as they commonly miss opportunities.
Such behavior is driven by what behavioral economists call the “sunk cost bias” or “sunk cost fallacy.” A more familiar expression to describe the phenomenon is “throwing good money after bad."
New research from INSEAD and The Wharton School suggests a fresh solution to counter this bias: mindfulness meditation.
Clearing the mind
Mindfulness meditation cultivates awareness of the present moment and clears the mind of other thoughts, often by focusing attention on the physical sensations of breathing.
Although mindfulness meditation practice began in Asia at least 2000 years ago, it is only in recent decades that Western clinical psychologists used this tool to effectively reduce negative emotions and stress.
The INSEAD and Wharton team has discovered how to apply mindfulness meditation to help overcome sunk cost challenges, which can be deeply rooted.
“Part of the problem,” explains Andrew Hafenbrack, INSEAD doctoral candidate in Organisational Behaviour and the study’s lead author. “is that most people have trouble admitting they were wrong when their initial decisions lead to undesirable outcomes.
The study found that a brief period of mindfulness meditation can encourage people to make more rational decisions by considering the information available in the present moment, while ignoring some of the other concerns that typically exacerbate the ‘sunk cost bias’.
In one online study, the researchers surveyed American participants about how much they typically focus on the present moment. The results revealed that the more people typically focused on the present moment, the more they reported that they would ignore sunk costs.
To test whether mindfulness caused an increased resistance to the sunk-cost bias, the researchers conducted an additional three experiments. In each, participants listened to a 15-minute recording made by a professional mindfulness coach.
For one group of participants, the recording led them through a focused-breathing meditation that repeatedly instructed them to focus on the sensations of breathing.
The other group of participants listened to a recording that asked them to think of whatever comes to mind, a practice that is not a form of meditation.
Participants then responded to sunk-cost scenario questions. In the final study, participants also answered questions about the time period on which they focused – that is present, past, or future - and the emotions they experienced.
The results show that mindfulness meditation increased resistance to the sunk-cost bias in each of the three experiments.
“The debiasing effect of mindfulness meditation in sunk-cost situations was due to a two-step process,” said Zoe Kinias, an Assistant Professor of Organisational Behaviour at INSEAD.
“First, meditation reduced how much people focused on the past and future, and this psychological shift led to less negative emotion. The reduced negative emotion then facilitated their ability to let go of sunk costs.”
“This tool is very practical,” adds Sigal Barsade, the Joseph Frank Bernstein Professor of Management at the Wharton School at the University of Pennsylvania. “Our findings hold great promise for research on how mindfulness can influence emotions and behavior, and how employees can use it to feel and perform better.”