Sunk Cost Bias

It takes great courage to do.
It takes greater courage to let go.

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. It may be pushing you to do things that you would or should rather not do.

Simply put, In the name of honoring your personal commitments, you may be digging a deeper hole.

E.g., You may have registered for a weekend online class earlier on. Later you decide it better to spend more time with your family. But since you’ve already paid for the class, you cannot help but attend.

Not just in terms of money, but time, energy, and effort as well. It can result in not just bad financial decisions but bad life decisions.

Sunk cost effect is attributed to various cases in business decision-making. E.g., The General Motors management’s reluctance to move away from previously successful strategies is said to have contributed to the firm’s ultimate decline. In aviation, the British and French governments continued to fund the Concord project even after it became apparent there was no longer an economic case for it.

What can we do about Sunk Costs?
-Use Big Picture thinking
-Rethink. Admit failure if need be.
-Detach from personal attachments to decisions. Move on.
-Live in the present. Make whatever you do worth it.

What recommendations would you have on ignoring sunk costs?

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