Growth Zone #12 - The Fallacy Trapping You in Bad Decisions

✨ Worth the Time

Sunk Cost Fallacy

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.

💡 Our takeaway

Quitting it's OK

“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!

🚀 Quick win

Don’t get Sunk!

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:

Accept it’s a cost: Remember, your past decisions are costs, not investments. Evaluate if they add any value to your present situation.
Re-evaluate your decision: Keep an open mind and be ready to change your decisions if needed. Nothing is set in stone.
Know your stop loss: Embrace humility and accept losses. Be prepared to walk away from past mistakes and change your own mind.

Rational decision-making lies at the heart of avoiding the sunk cost fallacy. Prioritize logical thinking and consider the following aspects:

Poor outcomes: If you consistently face unsatisfactory results, it's time to re-evaluate.
Opportunity cost: Assess where your resources (time, energy, money) will bring the most value. Is it better to stay the course or venture elsewhere?
Mental health: If a situation negatively impacts your mental well-being with no positive prospects, it's best to close the door.
Compromised confidence: Decreasing confidence in a situation indicates that it might be time to walk away.

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.