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Overcoming the Sunk Cost Fallacy: Embracing rational decision-making

"I've spent so much time and effort on this already, I'd rather spend some more and see it through." Have you said something similar to yourself even when it seemed like your time & efforts were going into a blackhole? If yes, you'd fallen prey to the Sunk Cost Fallacy, first introduced by Richard Thaler. Simply put, the sunk cost fallacy is a cognitive bias where individuals continue to invest resources (time, money, effort) into a project or stick to a past decision, even when it no longer provides any value or has become detrimental; and when other better options are available. People fall into this trap because they focus on the costs they have already incurred, rather than objectively evaluating the future prospects or benefits of their actions. If like me, you've sat through a boring movie just because you paid for the tickets; the sunk cost fallacy had its claws around you in that instance. Here are other common instances: Holding onto failing investments: Investors may resist selling their losing stocks or assets because they don't want to accept the financial loss they've already incurred, hoping that the value will eventually rebound. Staying in an unhealthy relationship: People sometimes remain in toxic or unfulfilling relationships, even when they recognize the negative aspects, because they have already invested a considerable amount of time & effort into the relationship. Choosing to stay with the same organization, either expecting a promotion or to avoid forfeiting the performance bonus: Employees may stick around in the same organization thinking that they might as well wait for another year to get a promotion, especially if they've already waited for 2+ years. Similarly, people may delay searching for another job despite unbearable conditions, just so that they get their performance bonus. I've been guilty of this too. These are a few ways to overcome the sunk cost fallacy: 1. Recognize & acknowledge it: The starting point is to be aware of the sunk cost fallacy & understand its repercussions. Recognize that the past investments you've made are already irrecoverable & should not dictate your future decisions. 2. Seek external perspectives: Discuss your situation with family members / friends / colleagues, or mentors who can provide an objective viewpoint. Sometimes, an outsider's perspective can shed light on the irrationality of your actions & help guide you towards a more rational decision. It's like someone holding a mirror for you to make you see clearly. 3. Focus on future benefits: Redirect your attention towards the potential future benefits and outcomes of alternative choices. I'll admit this is not easy to do. Tiny Habits Recipe: When I notice that I'm becoming a victim of the Sunk Cost Fallacy, I will seek a friend's perspective. What's the worst case of this fallacy you've seen?

Image: Andrii Dodonov @ Canva


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