In economics, a sunk cost is money that you have already spent and cannot get back.
The Sunk Cost Fallacy is a cognitive bias that leads us to stick with decisions or endeavors based on the time, effort, or money already invested, even when it's not in our best interest to do so.
This fallacy occurs because we're not purely rational decision-makers and are often influenced by emotions like guilt or regret.
Our brains are wired with a strong commitment bias that drives us to continue supporting our past decisions, despite new evidence suggesting a different course of action may be better.
We also experience loss aversion, where the impact of losses feels worse than the impact of gains, causing us to prioritize avoiding losses over seeking gains.
👀 This video explores what sunk costs are, why they happen, and what we might do about them.
“Quitters never win, and winners never quit” – a mantra popularized by legendary NFL coach Vincent Lombardi.
But what if this idea isn't always true? In reality, quitting can sometimes be the key to success, and grit or perseverance might hold us back.
The truth is, not all goals are worth sticking to.
Sometimes, we need to let go of things like businesses, friendships, relationships, jobs, or ideas to make room for better opportunities.
The current context and circumstances of a decision we made in the past can make a huge difference. If some elements shift, it might be time to rethink our approach, loosen our grip on that goal, and embrace the changes that come our way.
Strategically quitting means knowing when to change the approach. It's about letting go when the drawbacks of pursuing a goal become greater than the benefits of exploring new opportunities.
Instead of stubbornly persisting, it's important to recognize when it's time to reassess and reevaluate one's strategy.
Ultimately, it's vital to understand when it's best to change course. Adopting this mentality can lead to better outcomes, showing that at times, those who quit can actually success too!
To steer clear of the Sunk Cost Fallacy, it's important to focus on current and future costs and benefits, rather than dwelling on past commitments. Here are some practical steps to help you avoid getting trapped in this fallacy:
Rational decision-making lies at the heart of avoiding the sunk cost fallacy. Prioritize logical thinking and consider the following aspects:
Ask yourself, “If I were just starting this endeavor today, would I still do it?”. If the answer is no, then the logical thing to do is cut your losses and walk away.
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