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Don’t drown in sunk costs

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Idea Journal Weekly 3

May 8 · Issue #242 · View online

We combine 3 ideas to help you think differently and be more creative.


Summary: Are you staying in a job or relationship when you know it’s toast? Or continuing to work on a project even as all signs point to its inevitable failure?
Having to cut losses sucks. But staying on a sinking ship is worse. This issue explores a few reasons why.
(~3 min read)

#1. The longer you stay, the harder it is to leave
The creators of the Alux podcast call the sunk-cost fallacy one of the fifteen mental errors that are keeping you from being rich. 
For the Alux team, the sunk-cost fallacy “refers to people who are pursuing a goal they know they will fail at.”
Just because they’ve already invested effort, money, or time.
For example, in poker this means holding onto a losing hand—”just because you’ve already put the majority of your chips in the pot.”
In business, it’s continuing to stay at an unfulfilling company because you’ve been with them for ten years. 
And in love, it’s staying in a relationship that’s not benefiting you, simply because it’s convenient and you’re scared to start over.
As the Alux team puts it, in all these cases “the quicker you act against the sunk-cost fallacy, the better in life you are.”
#2. Some projects are failures—and that’s OK
Researchers Lauren McCann and Gabriel Weinberg write in Super Thinking that, “When it comes to losses in particular, you need to acknowledge that they’ve already happened.”
This acknowledgement is a key step in avoiding the sunk-cost fallacy.
The costs of a given project, including your time, have already been sunk. 
You can’t get them back.
As McCann and Weinberg point out, the problem happens when you let those previous losses cloud your decision making.  
One example where sunk costs can lead to an escalation of commitment is called the “Concorde fallacy.”
The Concorde fallacy is named after the supersonic jet “whose development program was plagued with prohibitive cost overruns and never came close to making a profit.”
Ask yourself: is your project like the Concorde? Are you throwing good money after bad when it’s better to just walk away?
#3. Don’t squander your future
Marketing guru Seth Godin writes on his blog that, “Quitting is underrated.”
As Godin notes, for skilled information workers, job mobility “has never been easier or more profitable.”
But many people stay where they are—without considering why. 
Godin points to the recent changes at Twitter as an example: 
“…there are hundreds of senior leaders and contributors at Twitter who haven’t quit their jobs in the last week. Even though they have a financial cushion, a technical reputation and are facing the prospect of working for a new boss who has little respect for what they’ve worked on for years.”
So why do people stay?
He offers a few reasons: 
  • Some people stay where they are “because they value unearned options in ways that undervalue their upside potential at a different gig.”
  • Others stay because they’ve worked hard to get where they are, and they don’t want to risk what they have.
  • And still others stay because thinking about alternative options feels risky, and many people would rather avoid that feeling.
But with remote work, transferable networks, and valuable tech skills there are now millions of people who could benefit from thinking hard about what they want to contribute to and create in the future.
“You don’t get tomorrow over again. The chance to build something you’re proud of with a team you are eager to work with is a privilege, and ignoring it would be a shame.”
Quote of the week
“No one ever drowned from falling in the water. They drowned from staying there.”
Author and entrepreneur Steve Sims in his book Bluefishing
Idea Journal
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