When the Urge to Win Overwhelms Rational Decision Making

There are times when the urge to win overwhelms logic. Authors Malhotra, Ku, and Murnighan offer the example of a takeover battle between Johnson & Johnson (J&J) and Boston Scientific to buy Guidant, a medical device maker. Even though Guidant was in the middle of recalling 23,000 pacemakers and telling another 27,000 patients who had pacemakers already implanted to “consult their doctors”, the bidding war between the two buyers lead to a final price of $27.2 billion, S1.8 billion more than J&J’s initial bid. After the recall, Guidant shares went from $23 to $17 a share. Fortune magazine later called the acquisition “arguably the second worst ever,” only surpassed by AOL’s infamous purchase of Time Warner.

What fuels these competitive dynamics that lead to bad decisions? The authors identify several key factors:

· Rivalry. When parties are intensely competitive with one another, they are willing to suspend rational decision making.

· Time pressure. An artificial deadline, or time pressures such as those in an auction, can push people into quick (and often erroneous) decision making.

· The spotlight. If audiences are watching and evaluating the actor, he is more likely to stick to his guns and escalate his investment just to look strong and tough to the audience.

· The presence of attorneys. The authors indicate that attorneys, who are more oriented toward “winning” and “losing” in legal battles, may pressure their clients toward winning when options for settlement may clearly be present. This perspective may be complicated by the way the attorneys are paid for their services.

The authors offer several important suggestions to reduce or eliminate the negative impact of these competitive pressures, in order to make more sound and reasoned decisions.

Source: Deepak K. Malhotra, Gillian Ku, and J. Keith Murnighan, “When Winning Is Everything,” Harvard Business Review 86, no. 5, May 2008, pp. 78-86.