Here’s a hypothetical situation that isn’t so hypothetical because it happens all the time. It’s about defending an institution from the unbearable humiliation of behaving reasonably.
Photo courtesy CFO Strategies, LLC
At 9:14 a.m., somewhere deep inside the administrative bunker of a hypothetical country club, a man in a logoed quarter-zip receives an email requesting a prorated $250 refund.
A normal business would process this in six minutes. But this is sports-adjacent America, where reason goes to die in the parking lot beside the range balls.
The email travels upward through the sacred chain of command. Faces tighten. Coffee is consumed. Someone says the words “potential litigation” with the gravity of a NORAD missile alert.
Just like that, a tiny accounting issue mutates into a full-scale institutional crusade.
By noon, the organization has committed itself to spending approximately the GDP of a small island nation to defend the right to keep $250.
Enter the lawyer rate: $500 an hour. The meter begins running immediately. Read email: $41.67. Reply to email: another $83. Conference call with management: $250. Draft sternly worded response containing the phrase “per club policy,” priceless.
Within 48 hours, the club has spent ten times the disputed amount in legal fees alone, all while insisting it is acting prudently.
That is where sports organizations become scientifically fascinating. Behavioral economists call it escalation of commitment. Psychologists call it confirmation bias. Hunter S. Thompson would probably call it a psychotic episode in khakis. Once the institution emotionally decides it is “right,” objective reality becomes irrelevant. The math certainly does.
Suppose the disputed amount is $250, and the legal counsel bills $500 per hour. Suppose there is merely a 50% chance the claimant wins. Expected liability? 50% × $250 = $125. So what’s the extra $125? 15 minutes for a lawyer, which ain’t going to get anything done. Expected liability: 50% × $250 = $125.
That is the amount a rational institution should be willing to risk.
Unfortunately, $125 buys approximately fifteen minutes of a lawyer staring thoughtfully at Outlook. The moment the words “Let’s fight this!” enter the conversation, the economics disintegrate. That’s because you have to add filing fees, attorney time, administrative meetings, discovery responses, the emotional support conference call, and three managers forwarding the same email to one another for seventy-two straight hours
Suddenly, the expected liability is no longer $125. It’s 50-50 of way more than to settle. Plus, it sets a precedent by spending several thousand dollars to defend the sacred constitutional principle that ignorance matters.
Daniel Kahneman called this the inside view: institutions become so consumed by defending their decision that they stop evaluating the actual probabilities and costs from the outside.
In plain English, they go bonkers. This isn’t business. It’s a parallel universe where ordinary cost-benefit analysis is replaced by ritualized ego defense conducted by men in logoed quarter-zips with online management degrees and absolute confidence.
In normal commerce, spending $12,000 to avoid paying $250 would trigger an intervention from the finance department. Not here. Why? The institution operates according to a mystical belief system, believing that admitting minor administrative error is somehow more catastrophic than detonating money directly into the sun.
Once the institution decides it is “right,” the objective is no longer to solve the problem. It is to defend the institution from the unbearable humiliation of (get this) behaving reasonably.
Hypothetically, of course….
