Imagine a group of fisherman setting out to sea. Each of them knows the best spots, but they also know that these spots are competitive. When they hear rumors that other boats are heading to the richest waters, they might decide to cast their nets in less bountiful areas, fearing that competing in the prime spots could leave them with empty nets. This decision is driven by the fear of returning to shore with nothing. Nobody likes pulling into the harbor with an empty ice chest. This aversion to risk illustrates a broader human tendency seen in the world of highway construction bidding.
When a nice bid comes up, contractors, like our cautious fishermen, invent a host reasons to slash their margins on bid day. Examples:
1. Our striping sub tells us Competitor A is really going hard after this one. How could they possibly know?
2. Remember that massive job we lost by $50K four years ago? I never want to lose by that much again so I always cut the price by $50,001.
3. We need the tons (cubic yards, square yards, etc.)
4. We never add money on bid day.
This fear driven decision making overlooks the potential upsides of bolder, more profitable bids.
If you cut 2% from your profit margin and win the bid by 10%, the repercussions are minimal, almost shrugged off with a “it is what it is” attitude. This pattern, when repeated, results in a significant loss of potential profit, yet it’s the safer path, less criticized, less remembered. The losses easily total in the millions and no one may notice.
In contrast, dare to add a mere 2% to your bid and lose, and the narrative changes dramatically. Such boldness, even on a single tiny project, is remembered not for its courage but for its failure. The social stigma is immense especially when bid results are public. This asymmetry between the perception of loss and gain underpins a trend where the average bid spread - the dollar gap between the lowest and second lowest bids - is around 8% in the “low bid” highway construction business.
This phenomenon shows our inherent fear of loss overshadowing the potential for gain. We prefer the familiar, the safe, the unambitious - a decision making process ruled more by fear than by opportunity.
In the end, just like the fishermen who stick to the shallows, we often choose the certainty of a smaller catch over the uncertainty of a bountiful one, showing our human nature to disproportionate fear of loss, often at the expense of greater success.
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