business career entrepreneur success

Commitment, critical for ensuring cooperation in business

Pre-commitment works when it binds us to a course of action, when we can’t change from our original plan without penalty. This aspect of pre-commitment turns out to be critical for ensuring cooperation and success in social interactions, business and career and for entrepreneurs.

Promises bind our future actions and success

When we interact with others in economic settings we need to convince them that we can be trusted, that are promises bind our future actions. In modern society there are external tools for making binding promises, things like legal contracts. But our reputations, and as a result our success, also suffer when we break their promises and as I discussed in an article on cooperation, people will readily punish promise breakers in order to enforce social norms.

But what about very simple sorts of economic interaction like two people haggling over a price? There are no contracts and no reputations to consider, what can cause people to cooperate for mutual benefit in business, as entrepreneurs and in personal life? Promises aren’t enough! Most verbal promises are just cheap talk without any pre-commitment mechanism, so we need some way to bind ourselves to a course of action so that we can’t take a different action later.

Actions against self interest harm careers

Let’s think about ultimatum game. As a reminder, the standard form of this game involves two players who don’t know each other, have no other interactions beside the game itself and who play the game once. The first player, the proposer, has access to a sum of money say hundred dollars and can propose a division of that money, say that they keep $90 in the second player gets $10.

The second player the respondent can choose to accept that division or reject it, in which case no one gets anything. A rational responder would accept any proposed division. After all, some money is better than no money, which means that a rational proposer would offer a very small amount. And this applies to our career decisions.

But I told you that when people play this game for real money responders will reject offers that seem unfair even when the stakes are pretty large and because responders do reject unfair offers against their own self interest proposers offers tend to be relatively fair. What causes this emotions? When responders are given an unfair offer they recognize it as unfair and they get angry.

Our emotions make business promises credible

Anger has two key effects on people’s behavior it pushes us toward action – angry people want to strike out of the source of the anger and it reduces our self concern – angry people are willing to sacrifice their own well-being and success to harm others. The economist Robert Frank argues that our emotions makes promises credible.

Think about anger. Can you tell if someone is really angry? Of course! You can see it in their face in the tensing of their muscles how they stop around the room with undirected energy, and does that anger dissipate instantaneously as if turning off the light switch? No! Anger lasts. It takes time to dissipate and all the while you’re fearful of what that angry person might do next.