Sunk Cost, Why You Should Give Up Often.
If you would have told me few years ago, that i would be writing such an article, i would have called you nuts.
8 years ago, i wrote an article entitled : The best way to fail, is to fail Fast. NOT True! In the article i argued against the popular idea of “startups should fail fast”. I am a person who refuses to give up. But as years passed, i learned that what is most important is actually time, and you should not waste time when you should not.
Recently i took a tiny course on Linkedin Learn platform. The course is entitled “the secret to better decisions: Stop hoarding the chips” by Seth Godin . It is a tiny course, that could have been replaced easily with a 30 minutes youtube video. This course however brings home the idea of “sunk cost” a logical fallacy that i love to refer to.
Sunk cost, corrupts decisions.
The essential idea, is that you should never look at the past when taking a decision that will affect the future.
For example, if you buy Apple stocks for $1000, and today they are $500, you would be hesitant to sell due to sunk cost. Hence you are basing your decision about the future on a past event, and that leads to wrong decisions.
The idea of sunk cost, Seth presented in an amazing way, with several visual examples. From kayaks collecting dust, and unused boats parked costing owners a lot of money. To adopting a green iguana that can grow to a huge size. And dentists being unhappy in their profession. All examples of sunk cost, where we delay taking the decision to change not based on the future but on the cost of the past.
It takes wisdom and courage to avoid falling into the sunk cost fallacy. Quentin Tarantino made his first movie when he was still an employee working for a video rental store. He put every dime he earned and countless hours into producing “My Best Friend’s Birthday “, after a couple years, he dropped the movie. Not satisfied with the final product he chose not to waste more time and effort.
Myself, i have been a victim of this hoarding fallacy as well. I had thousands of dollars per year the cost of renewing domains. Had many projects launched, half launched, planned but never launched or simply planned but did not yet had the time to tackle. Thanks to inflation and Covid, i have finally started seriously reducing the list. Holding a domain for 5 years or 10 years, makes you want to continue holding it, even if the project never materialised.
Avoiding sunk cost decisions requires courage.
Recently 2 decisions by 2 individuals, made me realise the amount of courage required to break the sunk cost effect on your mind. The first, a young lady, having a team leader position in a S&P 400 company, decided to quit to travel the world. The second, is a site director of a S&P 400 company, decided to quit after 16 years, to start a new chapter in his life.
Quitting a job is not easy, especially if you worked hard to achieve something. It takes courage, but also wisdom to look into the future and not be bothered by the baggage of the past.
Sunk Cost or hoarding the chips is a trap. Similar to the mythical monkey trap. We get trapped by our hoarded assets, which prevents us from taking the right decision.