Back in 1987 North Korea constructed a Soviet-era looking, pyramid-shaped, high-riser hotel. It was built to compete with South Korea as it prepared to host the Olympics. But when the Soviet Union collapsed, the funding for the hotel disappeared (to the relief of architects around the world), and it’s been sitting in the middle of Pyongyang collecting dust. North Korean officials even tried to airbrush it out of photos of the city.

Sure, the North Koreans could have admitted their blunder, cut their losses, and invited in the demolition team. But instead they recently hired an Egyptian firm to continue construction work on the hotel. This might be a classic case of commitment to a lost cause, but psychologically speaking, it’s more painful to admit to an embarrassing disaster than to march down a familiar path. We can all recall times in our own lives when we’ve built such symbolic “towers,” and how long did we remain committed to their completion?

We’re thrilled that the folks at mashable.com have selected Sway to be the first title in their new book club. In web 2.0 fashion, all discussions and comments will take place over email and chat. It’ll be interesting to see how these will differ from the regular questions and comments we get when we present in person or over the radio. We’re excited to find out what’s on people’s minds. 

Would you pay $14 for a fast-food burger? Would you consider it a good value? Reader Matthew Weathers blogged about an ad campaign that reminded him of Sway. Carl’s Junior set up a makeshift fancy restaurant and served $6 burgers for $14, nearly two-and-a-half-times their usual cost. The customers happily shelled out that much money and seemed delighted with the quality of the meal. Although this is not a scientific study, it presents another vivid example of value attribution: our tendency to imbue an initial value (in this case a fancy restaurant) to a product (a fast-food burger). Have you ever caught yourself making the same type of diagnostic errors, whether on a first date or making a decision at work? 

We’re continuing to go through the LinkedIn answers (over 400 so far) and making interesting discoveries. Some of the irational workplace anecdotes are of the funny/tragic type: a company director who attended a sexual harassment workshop and decided to hit on the trainer, or a guy who was asked by a manger to spend eight hours moving boxes from one place to the next, only to come in the next day and have another manager tell him to please put the boxes back where they belong.

The answers offer an intriguing snapshot into workplace irrationality, and we’ve spotted the following themes among many of the answers:

- Unfair promotions: Not only does this practice hurt company morale, it creates serious doubts in the mind of employees about fairness and the overall leadership capacity. Promotion decisions can get especially dicey in family-owned businesses, where relatives can get preferential treatment. This often results in ingroup-outgroup dynamics, such that if you’re part of the family you’re seen as legit, and if you’re not, then your point of view doesn’t get valued as highly.

- Loss aversion and marketing: When a company hits tough times, it makes sense to cut down on costs, but often the first thing to go is marketing. Now, marketing can actually pull a company out of the mud, but mangers focus so much on avoiding losses that they cut costs rather than think about how to increase revenues.

- “That’s the way we’ve always done it”: Leaders refuse to entertain new ideas because of a commitment to a previous way of conducting business. This is especially frustrating to new recruits who wonder, If you liked us so much to hire us, why aren’t you listening to us? 

Thanks to all the LinkedIn members who are responding to Ori’s question: “What are your best examples of irrational decision-making in the workplace?” Keep them coming. We’re still sorting through all the stories, but wanted to share a funny one brought to our attention by Michael Duffield. Watch this gender-bending commercial, which aired in England. When viewers were offended by the same-sex peck, Heinz decided to pull the commercial, triggering new complaints that the company catered to homophobic interests. Either way, Heinz was playing not to lose.  Does this create innocuous (and boring) commercials? Was Heinz acting irrationally (either by airing the commercial or pulling it)?  Tell us what you think.  

Visit LinkedIn today to chime in about irrationality in the workplace.

From an early age, Ori had a phobia about uncomfortable situations, especially when it came to delivering bad news.  Even as a kid, you could see it on his entire body: he’d squint his eyes, curl his toes, and try to circumvent the situation by any means necessary. He was always wary about how people would react—would they get upset?  Would there be a fall-out? It’s a lot easier to keep quiet and hope that, well, if you ignore it, it will go away.

Many managers share the same sentiment of feeling uncomfortable with delivering bad news, especially these days when company reports aren’t the most optimistic.  When the company is not doing as well as expected, it’s tough to find the right words to communicate what’s going on. Is employee morale going to suffer? Are investors going to be dismayed?

But research suggests that, especially when there’s bad news, keeping quiet exacerbates an already bad situation. It all comes down to a psychological force called procedural justice: when we evaluate the overall outcome of a situation, we place disproportional emphasis on the process as opposed to the actual result. 

Simply put, people value frequent communication. As uncomfortable as speaking out may make us, letting people know where things stand makes it a lot easier for them to swallow the bad news. This holds true for venture capitalists and jailhouse defendants alike.  Research show that both evaluate the results (be it the success of the venture or the fairness of their sentence) by whether they received frequent communication. 

So, curl your toes as much as you want, but start speaking…

Our aunt Nira is our mom’s younger sister. From birth, she was always one of our favorite people—it wasn’t because she carried a pack of gum with her or that we could always count on her to take us out to pizza.

Nira always had an unwavering belief in us. Neither one of us had self-esteem issues, but if you compare our own self-perception with how Nira viewed us, it was like night and day.

A couple of months ago, Nira came from Israel for a month-long visit. She’s been having some health issues lately, and we knew what a big deal it was for her to make the trip. As we were sitting talking to Nira, we noticed that not much has changed. We’re no longer kids, but Nira’s belief in us is still unwavering. “I’m telling you, everything you’ll do will turn out great. Wait and see.” 

Yes, as adults we can logically question Nira’s relentless optimistic view of us. But there’s something very touching about her unconditional love. We also wonder about the psychology of it all: Did Nira’s viewing us in such a positive light help us live up to the role she ascribed to us?

Psychological forces aside, though, it’s Nira’s support that inspired us to dedicate Sway to her.

You’d think that if you offer billions of dollars to buy the typical CEO’s company, his eyes would instantly transform into cartoonish dollar signs.

Not so for Yahoo’s Jerry Yang, who repeatedly turned down buy-out offers from Microsoft.  Investor Carl Icahn criticized Yang’s decision as downright irrational.  We see his point, but we can also put ourselves in Yang’s shoes.

Last year, when Yahoo’s stock price was faring much better, Microsoft presented Yahoo with a buy-out offer for $40 per share. The Yahoo board turned down the offer, figuring that with Jerry Yang back on board (he had recently re-joined the company) Yahoo could get itself into a competitive position with Google without the help of Microsoft. Unfortunately, they were wrong, and the stock sank to a 5-year low, dipping into the $19 territory. As our mom would say, “You see, I told you so…”

But despite the stock price decline, Microsoft’s original $40 offer stayed alive and well in Yang’s mind as the figure he needed to reach in order to get back to even.

And so, when Microsoft shows up earlier this year with a $32 per share buyout offer, Yang couldn’t bring himself to accept. Psychologically, this new figure presented an $8 per share discount—or loss—compared with the $40 offer. This uneasy feeling in the pit of our stomach associated with a loss is difficult to ignore, even when objective data suggest it’s a fair price.

Even when Microsoft upped the offer to $33 a share, Yang didn’t budge.  A very reasonable offer, but a no-go for Yang.  Why?  For the same reason that house owners refuse to sell an investment property for a loss, even as prices continue to plummet.  And for the same reason that gamblers stay seated at a Vegas blackjack table, hoping to recoup their losses and get back close to even.

It might be easier said than done, but the Yahoo board needs to recognize that $40/share is a thing of the past. And when Icahn describes this situation as irrational, he’s hit it more on the bulls-eye that even he thought. 

When a plane carrying live nuclear weapons turns out to be an air force mistake, you know there’s a problem. And the resignation of top executives is understandable. But according to Stanford professor emeritus Martin Hellman there’s another nuclear problem brewing, with even more dire consequences—and it’s all about the fact the we don’t recognize that the problem even exits.

According to Hellman, it’s all about our government’s commitment to the status quo. We operate under the premise that nothing will go wrong because there hasn’t been a huge disaster.

Reminds us of the general attitude about terrorism prior to 9/11. It’s difficult to take a risk seriously if everything in the present seems fine.

But Hellman offers a solution: run an objective risk analysis and take necessary action based on actual evidence. It’s all about being proactive instead of staying committed to a policy just because it hasn’t broken down yet.