Romney campaign a victim of the “sunk cost effect”—also: how Gov. Huckabee’s sudden ascendancy is an artifact of the Romney campaign’s misguided activities
“Mitt Romney’s pursuit of the Republican presidential nomination has followed a time-tested route with an unorthodox twist,” writes Dan Balz in a WaPo release titled Fighting Head Winds
His path reprises that of others who began their campaigns overshadowed by better-known opponents. The strategy is built on the belief that winning begets winning and that early victories produce inevitable, even unstoppable, momentum.This would be true if e.g. Romney had been a governor of Texas or California. The sad truth is that Romney’s path is without precedent.
What is unusual about Romney’s White House quest is that he is neither true dark horse nor formidable front-runner. He is neither the candidate poised to spring a surprise in Iowa or New Hampshire, nor the candidate judged by his fellow Republicans nationally as the top choice for the nomination — or even the second or third.
He has become burdened by a front-runner’s expectations without many of the traditional assets. Losses in any of the early states could significantly set back his hopes of winning — and that is what he faces in Iowa from a surging Mike Huckabee, a former governor of Arkansas …
… Some Republican strategists consider Romney’s campaign to be the most effective and skilled of any of the candidates. The man who built a fortune as a management consultant and venture capitalist and who turned around the scandal-ridden 2002 Winter Olympics has applied those skills to put himself into the thick of a race against better-known opponents such as Sen. John McCain of Arizona and former New York mayor Rudolph Giuliani.
Romney’s wake-up call to the rest of the party began Jan. 8, when he staged a national fundraising telethon in Boston that collected more than $6 million in pledges — a stunning accomplishment for someone who had served but one term as governor and had ended the previous year with a 5 percent approval rating in national polls.
He led the GOP field in fundraising in the first quarter of the year — and has shown since then both a capacity to continue raising money and a willingness to dig deep into his personal fortune. He stood out in the early debates — handsome and photogenic on stage and nimble enough to impress party activists who otherwise knew little about him.
And his team took an early gamble, putting Romney ads on television in Iowa and New Hampshire last spring — earlier than any candidate in history — and keeping them running through the year. The costly investment paid off: By summer, he topped polls in those states and forced his better-known opponents onto the defensive.
Yuh-huh. Only here’s the thing: the costly investment never paid off. If the costly investment had paid off Romney would not be in peril right now. And Romney has organized and funded the most spectacularly unsuccessful campaign in the history of the Republican primaries.
(1) Here is one problem with the claim that Romney’s “costly investment paid off”: competitive activity requires a competitor, and Romney was advertising all by himself for months and months. When you compete without a competitor you have no way to register performance, whether good or bad or whatever—i.e. your learning opportunities are null bordering on void. Regard: If you run alone you can run against your best time and try to surpass it. But if you have only ever run alone then “best time” has objective ground only as an index of your own development as a runner, nor do you have any objective ground against which to rate your “development.” Yet the Romney campaign—with no objective grounds whatsoever—incredibly, unbelievably, interpreted their rising numbers as progress, even as their marginal rate of return crashed and kept crashing! (This means that they were paying more and more for less and less.)
(2) Because (1) the Romney campaign—and Dan Balz—incorrectly interpreted their rising numbers in the early primary states as success, Team Romney optimized to exploit their non-success, i.e. they narrowed their focus to what activities seemed to return a yield at the expense of other activities or functions. In business research literature this is called the Icarus Effect (Miller 1993, if memory serves). Since what returned success for Team Romney reduced to spending lots and lots of money, Team Romney continued to do so, only harder, faster, and more recklessly. Elsewhere we referred to this as The Madden Doctrine, what some would call the “sunk cost effect … manifested in a greater tendency to continue an endeavor once an investment in money, effort, or time has been made.”
(3) Also: Losers learn—why everyone forgets this primary lesson of any goal-oriented, competitive activity is a mystery to us. The other campaigns observed Romney’s imprudent, borderline irrational antics and developed strategies and lines of argument to compensate—e.g. Mayor Giuliani, in a move worthy of Hannibal or Sun Tzu, simply wrote off Iowa completely to deny Romney the opportunity of an unequivocal victory, a low-cost but low-gain decision that earned Hizzoner lots of ridicule and abuse. But in the paradoxical logic of strategy, the worst possible route from ‘a’ to ‘b’ can be the most effective route. Hizzoner gained nothing, but he didn’t lose a lot either, and he denied Romney a decisive victory despite all the many millions that Romney squandered. Only now is it becoming clear to others the wisdom of Hizzoner’s tactical withdrawal.
(4) Distinct competencies deprecate with every passing moment—every mail room clerk with a BA in business or out-of-work freak with an online MBA knows this—it is a wonder to us that Team Romney doesn’t. Romney’s only distinct competency is his vast personal fortune which he can call upon at any time—otherwise Romney’s has considered it his task to render himself non-distinct by reversing himself on every policy position he has ever had and adopting a crude, caricatured, and unreconstructed conservative line, and by trying to pretend to be an Evangelical (Christ, apparently, is Romney’s personal savior, a formula unfamiliar to the Mormon confession). To negate Romney’s only distinct competency would only require that a high ROI campaign like Gov. Huckabee’s or Mayor Giuliani make an issue of Romney’s self-funding and exceedingly low ROI (as Gov. Huckabee delights in doing).
Note to Balz et al: To combine (1) through (4) returns defeat, disaster, and complete humiliation, not success. Try, Mr. Balz, to look beyond the motorcades, the sparkly-glossy campaign media products, the candidate’s insipid powerpoints, the entourage of hirelings, the sniveling court eunuchs in handsome suits who hover about the imperious person of Romney himself etc. What is Romney’s RETURN ON INVESTMENT (ROI) should be the decisive question.
Back to Balz:
Despite those successes, Romney’s candidacy has fought head winds from the start. Beyond the issue of his Mormon faith, he has been dogged by the charge that he is a flip-flopper who ran as a pro-choice moderate when he tried to unseat Sen. Edward M. Kennedy (D-Mass.) in 1994 and then became an ardent abortion opponent in his presidential campaign.
Well, duh. What idiot told Romney that this would be a winning strategy?
Back to Balz:
The challenge from Huckabee in Iowa has become an unexpected obstacle to Romney’s strategy. He could face equally vigorous opposition from Giuliani and McCain in New Hampshire. And when the Republican field moves South to states with a high numbers of evangelical Christians, the issue of his religion will face its ultimate test.
Yes. We predicted this outcome. Because Romney telegraphed his punches in the early primary states, and because Romney made a great noise about his strategy and “inevitability,” and because of the popular perception that Romney has failed to respect the rules of the game, Romney now faces a divided field united only in their bitter opposition to Romney.
Also: we would argue that Gov. Huckabee’s rise is an artifact of Romney’s frantic spending. Here is our argument.
(1) Consider the concept of the breakout population—say that whale stocks crash and orcas begin consuming sea otters—this is an actual example—what is the result?—kelp forests disappear as sea urchin populations, a prey species of the sea otter, explode—this is an example of a breakout population. Moral: to disturb a critical node—in this case, a keystone predator—can cause breakouts elsewhere in the network.
(2) Romney by virtue of his vast personal fortune has suppressed the activities of the top tier candidates, the keystone predators who regulate the system. So Gov. Huckabee despite—or almost because of—his second tier status and lack of funds or organization suddenly, and powerfully, breaks out, which is the best possible outcome for Mayor Giuliani and Sen. McCain, both of whom can now sit quietly by and allow Romney to destroy himself as he tries to dislodge Gov. Huckabee.
(3) Elsewhere we discussed how Romney’s activities have distorted perceptions of the primary race in the same sense that subsidies or bailouts undermine the efficiency of a market to return prices that are an index of value:
Back to Balz:
Having bet on doing well in the early states, he will now live or die by the results … etc., etc.
Yes, we too used to agree that Romney would live or die according to the tests of Iowa and New Hampshire. But now we would argue otherwise. We predict that Romney will fight right up to, and on the floor of, a bitterly contested GOP convention. Romney has simply spent too much money—recall the “sunk cost effect“—besides: anything less than the GOP nomination would be too great a humiliation for him to bear. Besides: Romney honestly believes that he deserves the nomination and he is willing to defend his claim.