Sunk Cost Fallacy | Know when to Quit
What is Sunk Cost Fallacy ?
Have you ever kept eating that last piece of cutlet, just to justify the price paid for the dish, though your stomach ached-out in abundance ?
Do you ever keep yawning in the movie theatre and still reluctant to leave because you had paid for the tickets?
Are you frustrated staying in a business relationships long after you want to quit, but you still ignore the idea because you have already committed so much hours to the business.
Are you holding onto stocks that you once thought of as good investment, but not performing as per your expectations and falling steeply.
Then welcome guys’ !!, there’s no denying.. we’re all victims of the Sunk Cost Fallacy!
Let’s come to proper definition !!
“The sunk cost effect is the general tendency for people to continue an endeavor, or continue consuming or pursuing an option, if they’ve invested time or money or some resource in it,” says Christopher Olivola, an assistant professor of marketing at Carnegie Mellon’s Tepper School of Business and the author of a 2018 paper on the topic published in the journal Psychological Science. “That effect becomes a fallacy if it’s pushing you to do things that are making you unhappy or worse off.”
In simple words, The Sunk Cost Fallacy describes our tendency to follow through on an endeavor if we have already invested time, effort or money into it, whether or not the current costs outweigh the benefits.
Why Sunk Cost Fallacy happens | Psychology behind Sunk Cost Fallacy
When we have previously invested in a choice, we are likely to feel guilty or regretful if we do not follow through on that decision. The sunk cost fallacy occurs because we are not purely rational decision-makers and are often influenced by our emotions. It can be closely associated with every decision made in businesses, careers, or even relationships in life.
The sunk cost fallacy is identified with the ” commitment bias “, where we continue to support our past decisions despite new evidence suggesting that it isn’t the best course of action.
Second reason behind “The sunk cost fallacy” is due to ” Loss aversion “, which describes the fact that the impact of losses feels much worse to us than the impact of gains. We are more likely to avoid losses than seek out gains. We may feel that our past investment will be ‘lost’ if we don’t follow through on the decision
How to avoid it | When to Quit
Keep track of your investments, be it time or money, and be ready to cut your losses when the numbers don’t look good. When you keep track of your investments and your future opportunity costs, your chances of recognizing a doomed endeavor increase, and it is easier to cut your losses. Pause for a minute and consider what you could gain by cutting your losses now !!
Learn from your mishaps & keep going !! Learn to be able to acknowledge a loss and move on. Yes, it may be difficult to admit when you are wrong. But having the ability to accept your mistakes and learn from them is an important part of making better decisions in the future. To make this easier, think about the worst-case scenario that you have created. You will likely see that it isn’t really that bad, and you will be willing to face it.
Let go of your fear of waste and failure. Remember that everything in this world grows and changes, and not all projects succeed. By doing this, you will be able to ease your grip on something that you know in your heart is doomed.
Once again we go to Christopher Olivola ‘s words,
“What’s done is done,” Olivola says. “There’s nothing you can do to regain money that’s lost — and pursuing something that makes you unhappy not only isn’t going to get your money back, but it’s also going to make you worse off. You’re just digging a deeper hole.”
Final Takeaways
The sunk cost fallacy is you continuing to do something despite the obvious signs it isn’t getting any better but hoping it will without any evidence. Emotions are powerful and hard to ignore. The sunk cost fallacy mindset can happen whenever you feel like the only reason you’re continuing with something is that you’ve already spent time and money on it. The truth is that no one is perfect. If you take a moment, you can probably think of all sorts of situations where you make irrational decisions because of the sunk cost fallacy. So knowing about the sunk cost fallacy and quitting at the right time can help you achieve more logical outcomes in all facets of your life.
And who knows?
Maybe you’ll unlock a better world of opportunities.
Read more : The OODA Loop | Decision Making Model ( https://thebrightdelights.com/the-ooda-loop-decision-making-model/ )