Trusted Advisor Blog

Imagine our lives were we lived sailing along the ocean, and waterways represented our paths to success. As we navigate along our course with determination, willpower and drive we are at times met with obstructions. Some of these barriers we float above, some we can swim below, and others we need to see for what they are and face them head on.

These obstacles represent our own mind traps in rational thinking and are meant to expose our vessel’s weaknesses’. Along the path exists one particular intersection where our ship will veer off into sunk costs and loss-aversion. It is a perilous place to travel and a barren place to exist. It is the downside of persistence. This is the waters of ‘behavior economics’.

Though we are captains of our own vessel, as emotional humans we are also incredibly bad at cutting our own losses, and exceedingly good at clinging along a path to nowhere, despite dire consequences, simply because we have been on it so long. What we see as the point of no return can lead to our own personal, business or financial demise. If time, effort and energy were all quantifiable as currency, it is “throwing good money after bad.”

Instead of understanding that what we have spent is already gone, and despite all indicators on your ships warning panel blinking “danger,” we proceed and continue to advance. In fact, researchers have determined that the more time we spend on something, the less are egos are willing to let it go, whether the investment is monetary or time and effort. In other words, the further we go, even when we are completely heading in the wrong direction, we will continue along with more dogged determination, often to our own detriment.

(For more detailed studies, search among many the notable cases of failed Everest expedition of 1996 when the climbers ignored their knowledge to turn back once they felt they had arrived at the ‘point of no return.’ as well as the Concorde fallacy where enormous amounts of government money was invested by Britain and France in a failing jet)

Whether you travel each path along this ocean in search of success in a career, a degree, your portfolios, personal relationships or fulfillment…people waste time, money and effort in order to justify what they have already spent. We are innately rational creatures with an incredibly irrational side to our brains. Primal instincts once necessary to protect us (keep eating before there is famine) also lead us astray. In order to justify our past choices, we ignore the obvious sinking ship.

Just like casino gambling, or high stakes in Texas Hold ‘em, we need to get back what we put in, and we sense the jackpot is just around the bend. If we quit now it will all be for naught, so we stay the course. To admit your efforts were in vain, your losses permanent, and accept the truth hurts proportionately to the amount of investment we feel we sacrificed.

We trudge along an unsafe course until our ship is forced into dangerous waters and the sinking will be forced rather asking for directions, admitting we have no idea where we are going, and navigating a new route with conscious will and foresight. We stay on a path rather than look it over to see if it makes sense. And even sometimes when it doesn’t, we are too stubborn to admit it and we instead will find a justification to defend our own dysfunctional choices.

If we could allow for errors in judgment we would see clearly that when we veer off slightly it is ok to redirect, rather than floating aimlessly for the sake of principle. If we are prepared to adapt to the weather and adjust the course, we could see that in the survival of the fittest - flexibility is strategic, and stubbornness is terminal – and we could avoid our own self-imposed traps.

There is no decision or amount of regret we can offer that will morph sunk costs into a cost that makes a difference. Accept the errors, forget the past and trust that the quicker you address the matter the better. When in a counterproductive pattern, show no tolerance for the weakness, and move on to a better strategy. The benefit no longer exists. This requires humility and strength, as well as being truthful to oneself, to admit mistakes, especially those we are emotionally attached to, and allowing yourself to detach from the emotional investment.

Consider the time you spend toward a degree even though you realized partway in that it was not for you. Or the career that makes you miserable. Many exist in a relationship that no longer works. Investors hang on to a failing stock even when we wouldn’t purchase the stock at the current price. We attend events we purchased tickets to even when we immediately knew it was a waste of time and would rather be doing something else. We remain in a home that has lost value waiting for the market to improve and may miss out on a great purchase in the meantime. We are irrationally committed to the pot in poker even as we continue to lose. We paint a wall with a color we dislike because it is non-refundable, and end up buying more paint anyway later on and doing the job twice.

Once you begin to notice you may be entering a sunk cost situations ask yourself questions. Am I staying at this job, in this degree program, or in this situation because of what I already put into it? If so, know that you are falling for the trap. If you were not already in this situation, would you seek it out? Likely you would not, which indicates that it is time to move on. By sticking it out, remember that you are also losing out on other opportunities. When you cling onto a failing object tightly and regretfully with both hands, you cannot accept better options. Do not rationalize what you have already invested as a reason to stay, but instead ask yourself if you are having fun or if you believe another way of using your time and energy may be more fun.

Instead of focusing on the time you spent in a relationship and forcing the years you put into it to somehow seem ‘worthwhile’, consider it for what it is, a sunk cost, realize all you learned and what you have acquired (that’s your compensation), and know that not every relationship is meant to endure. Choose according to your best interest now combined with what offers a better future possibility rather than returning to an unfulfilling path because of ‘what could have been’ or to avoid the unpleasantness you expect to feel during redirection.

At home, if you have a closetful of unworn clothes you regret buying, regardless of price tags, donate or consign, the money is already spent. Books you purchased and magazines piled up you subscribed to but don’t enjoy – recycle, your time is better spent doing something you enjoy rather. Hanging on to items you will never use does neither the recipient not the giver any good.

You have a large plate of food in front of you and don’t want to ‘waste’ so instead you finish the meal when you are already full Consider this summary inspired from columns by Marilyn Von savant, an American lecturer listed amongst the highest IQ’s:

If you are full, there is no benefit to effort to eat everything on the plate, either at home or in a restaurant. Learn to throw good food away or save it for another dinner (not for snacking). People who are bothered by “wasting” food will either gain weight or cook (and order) less. Choose the latter, which actually eliminates the waste. Eating too much is the worst possible waste of good food. This doesn’t help starving children anywhere, and it makes the overeater a bit less healthy. Consider energy better utilized eating a meal you enjoy when you ARE hungry.

Once you see the paradox as it exists, you will navigate more efficiently and accurately. Sunk costs may not always be easy to see, but awareness precedes choice, and choice precedes success. We do not change behavior patterns until we recognize that they exist. It is not until we step outside of the inner cabins in our minds and out onto deck of the ship and look out onto the vast options that the world comes into focus.

If you do choose to stay the course, be sure you are doing so for all the right reasons, and not because of societal pressures, the need to hang onto the past, or ego. You cannot retrieve time, money or energy that is spent, but you can cut your losses, use your energy effectively and move forward. Our egos will always stubbornly try to hold us to bad choices just to save face and deflect our own difficulty facing our flawed choices. Once we begin to accept the flaws, see the weakness, and allow ourselves to be human and err, we no longer continue to sail along a failing path. We find that admitting errors is not failure, criticism does not hurt, change is inevitable, and we are able to redirect, start anew and overcome the giant obstacle to our own growth and success.

"You don't drown by falling in the water; you drown by staying there." — Edwin Louis Cole