The Psychology of Decision-Making in High-Stakes Environments

8 min readSep 27, 2023

In business, making good decisions helps guide companies through tough times and towards success. No matter if you’re a top boss, a business starter, or just an employee, the decisions you make are super important.

Making choices in business is like building a foundation. It helps plan, judge risks, and grab chances. This blog delves deep into the fascinating psychology of decision-making, especially in high-stakes environments.

It explores the intricate web of factors that influence our choices when the stakes are high, and the pressure is palpable. We will know the cognitive processes, biases, and emotional triggers that impact decision-makers in boardrooms, trading floors, emergency rooms, and other intense settings. Let’s get started!

Section 1: The Pressure Cooker of High-Stakes Decision-Making

What are High-Stakes Decisions?

High-stakes decisions are choices that carry significant consequences, often involving substantial risks or rewards.
These decisions are critical and have far-reaching implications for individuals, organizations, or even entire industries.

The Weight of the Outcome:

High-stakes decisions can determine the success or failure of a project, business, or mission.
They may involve life-and-death situations, massive financial investments, or reputation-defining moments.

Impact of Pressure:

Pressure in high-stakes environments arises from factors like time constraints, limited information, and public scrutiny.
Decision-makers often experience heightened stress, anxiety, and a sense of responsibility.

Apollo 1 Incident Example:

On January 27, 1967, the Apollo 1 mission suffered a tragic accident during a pre-launch test.
The decision to continue with the test, despite known issues with the spacecraft, led to a fire that claimed the lives of all three astronauts aboard.
The pressure to meet deadlines and demonstrate progress in the Space Race played a significant role in this ill-fated decision.

Impacts:

Cognitive Impact:

Under high-stakes pressure, decision-makers may experience tunnel vision, where they focus on immediate concerns at the expense of broader considerations.
Stress can impair judgment and lead to irrational choices.

Ethical Dilemmas:

High-stakes decisions often involve ethical quandaries, as individuals must balance competing interests.
The pressure to prioritize financial gain or short-term success can lead to ethical lapses.

Section 2: The Perils of “Go Fever”

What is “Go Fever”?

“Go Fever” refers to a psychological phenomenon where individuals or organizations become overly eager or driven to proceed with a decision or action, often in high-stakes situations.
It typically involves a relentless determination to move forward, sometimes at the expense of careful consideration and safety.

Rushed Decision-Making:

“Go Fever” can lead to rushed and impulsive decisions, as the desire to progress overshadows the need for thorough planning and risk assessment.
Decision-makers may dismiss warning signs or dissenting opinions.

Real World Examples:

Space Shuttle Challenger Disaster (1986):

An infamous example of “Go Fever” was the Challenger Space Shuttle disaster, where NASA proceeded with the launch despite concerns about the O-rings in cold weather.
The rush to meet schedule pressures resulted in the tragic explosion 73 seconds after liftoff, claiming the lives of all seven astronauts on board.

Boeing 737 Max Crashes (2018–2019):

The Boeing 737 Max crashes in Indonesia and Ethiopia were attributed in part to “Go Fever.”
Concerns about the aircraft’s safety were downplayed, and critical software flaws were not adequately addressed due to a desire to compete in the market.

Groupthink as an impact:

“Go Fever” often occurs in group settings, where the collective desire to move forward can suppress dissenting voices.
Groupthink can result in catastrophic decisions, as seen in the Space Shuttle Challenger case.

Section 3: The Sunk Cost Fallacy: Escalating Commitment to Failing Ventures

What is Sunk Cost Fallacy?

The Sunk Cost Fallacy is a cognitive bias where individuals or organizations continue investing time, money, and resources into a project or decision, even when it is clear that the venture is failing.
They base their commitment on the notion that the resources already invested (sunk costs) justify further investment, despite evidence to the contrary.

Escalating Commitment:

The Sunk Cost Fallacy often leads to escalating commitment, where decision-makers become increasingly committed to a failing endeavour.
This can manifest as pouring more money into a failing business, staying in a dysfunctional relationship, or persisting with a failing project.

Real World Examples:

Concorde Aircraft Project:

The Concorde supersonic jet project, jointly developed by British and French companies, is a classic example of the Sunk Cost Fallacy.
Despite numerous technical and financial challenges, both nations continued investing in the project for years, rationalizing the sunk costs, until it became clear it would never be financially viable.

Movie Production and “Heaven’s Gate” (1980):

The film “Heaven’s Gate” suffered from massive cost overruns and poor critical reception.
Despite these setbacks, the studio, influenced by the Sunk Cost Fallacy, continued to invest in marketing and distribution, resulting in substantial financial losses.

Impact:

Personal Finance and Gambling:

Individuals can fall prey to the Sunk Cost Fallacy in personal finance, continuing to invest in stocks or businesses that consistently lose value.
Similarly, gamblers may keep betting to recover their losses, even when the odds are stacked against them.

Decision-Making Implications:

The Sunk Cost Fallacy clouds judgment and prevents rational decision-making.
To counteract it, decision-makers must focus on future costs and benefits rather than dwelling on past investments.

Section 4: Confirmation Bias: Seeking Affirmation, Not Information

What is Confirmation Bias?

Confirmation bias is a cognitive bias that influences decision-making by causing individuals to favor and seek out information that confirms their existing beliefs or opinions.
It leads people to filter out contradictory information or dismiss it altogether.

Selective Information Processing:

Confirmation bias skews decision-making by guiding individuals to selectively process information that aligns with their preconceived notions.
This can create a distorted view of reality.

Real world Examples:

Political Biases: In the lead-up to the 2003 Iraq War, U.S. intelligence agencies and political leaders emphasized evidence suggesting that Iraq possessed weapons of mass destruction (WMDs). The emphasis on this evidence, while sidelining or ignoring contradicting reports, led to the invasion of Iraq. Later, it was revealed that the WMDs were nonexistent, suggesting that confirmation bias played a role in the decision-making process.
Investing: The fall of the Enron Corporation. Many analysts and shareholders continued to believe in the company’s reported financial strength, despite some indications and warnings to the contrary. As more data emerged, it became clear that the company’s finances were built on false reports and accounting fraud, leading to one of the most infamous collapses in corporate history.
Health and Medicine: The anti-vaccine movement has relied heavily on a discredited study that claimed a link between the MMR vaccine and autism. Despite overwhelming evidence contradicting this claim, many people continue to believe in the connection due to confirmation bias, putting public health at risk.
Social Media Algorithms: The “Pizzagate” conspiracy theory, which falsely claimed that high-ranking Democrats were involved in a child sex ring based in a Washington, D.C. pizzeria, was propagated on platforms like Twitter and Reddit. Many believers of this theory were shown more and more content that seemed to “validate” these beliefs due to algorithms feeding similar content, resulting in a man entering the pizzeria with a gun demanding answers.
Criminal Justice: The case of the Central Park Five in 1989, where five teenage boys were wrongfully convicted of assaulting and raping a jogger in Central Park, New York. Investigators and prosecutors focused on evidence that fit their narrative, even though it was weak, while ignoring contradictory evidence. The boys were eventually exonerated in 2002 when the real perpetrator confessed, and DNA evidence confirmed his involvement.

Impact:

Misjudgment:

Contradictory evidence is often ignored or downplayed.
Decisions can be based on flawed interpretations or overlooked information.

Reinforcement of Polarization:

Continual affirmation deepens already existing beliefs, causing further division.
Echo chambers form, exacerbating misperceptions and misunderstandings.

Stagnation and Resistance to Change:

Resistance to new information impedes adaptability and growth.
Organizations and individuals become rigid, missing opportunities for improvement.

Section 5: Strategies for Informed Decision-Making

Preparation and Due Diligence:

Prioritize comprehensive research and analysis before making high-stakes decisions.
Gather diverse perspectives and consider potential risks and benefits thoroughly.

2. Decision Frameworks:

Develop structured decision-making frameworks, such as cost-benefit analyses or SWOT (Strengths, Weaknesses, Opportunities, Threats) assessments, to evaluate options objectively.

3. Red Team Exercises:

Embrace the practice of assigning a group to play devil’s advocate, actively seeking to challenge the decision, uncover flaws, and identify potential blind spots.

4. Contingency Planning:

Plan for contingencies and have clear exit strategies in place.
This can counteract “Go Fever” by providing a predefined point at which to reassess the situation.

5. Peer Reviews and Second Opinions:

Encourage open discussions and peer reviews within your organization.
Seek external opinions or consultants to provide fresh perspectives and mitigate confirmation bias.

6. Data-Driven Decision-Making:

Rely on data and analytics rather than gut feelings or anecdotal evidence.
Implement key performance indicators (KPIs) and metrics to inform your decisions objectively.

7. Psychological Awareness Training:

Educate decision-makers about cognitive biases like confirmation bias and sunk cost fallacy.
Training can help individuals recognize and address these biases in real-time.

8. Clear Decision-Making Roles:

Clearly define decision-making roles and responsibilities within your organization.
This reduces the likelihood of hasty decisions driven by “Go Fever” and encourages collective decision-making.

9. Continuous Monitoring and Evaluation:

Regularly assess the progress and outcomes of high-stakes decisions.
Be prepared to pivot or adjust strategies if circumstances change.

10. Ethical Considerations:

Prioritize ethical decision-making by adhering to a strong code of conduct and involving ethics committees in critical choices.
This can help counteract the negative impact of “Go Fever” on ethics.

Now coming to the end, in the high-stakes environments of decision-making, where the pressure is relentless and the outcomes are critical, understanding the intricacies of the human mind is paramount.

We’ve explored the psychology behind decision-making in such environments, unveiling the diaspora of “Go Fever,” the Sunk Cost Fallacy, and the Confirmation Bias. These cognitive biases and pressures can lead to rushed, ill-informed choices, often with dire consequences.

However, armed with this knowledge, you now have the power to make a difference. By recognizing these psychological factors and actively working to counteract them, you can transform your approach to high-stakes decisions. Take a step back, conduct thorough research, involve diverse perspectives, and consider the long-term implications.

Lastly keep in mind that in business, where fortunes rise and fall on the quality of decisions made, these insights are invaluable. The path forward is clear: embrace a more thoughtful and strategic mindset, one that is acutely aware of the psychological traps that lurk in high-stakes environments. It’s time to empower yourself and your organization to make informed choices that stand the test of time.