Sunk Cost Bias -
A group or individual leader remains committed to a given plan primarily due to the investment already made in that plan, regardless of how inefficient and/or ineffective it may have become.
Staying with an idea or concept until it finds success sounds like the reasonable and responsible thing to do. Willing something to be successful, despite everything being shown to you that is contrary. Funny, the concept that is likened to “sunk cost bias” is the “gambler’s fallacy"...
Gambler’s fallacy -
The mistaken belief that, if something happens more frequently than normal during some period, it will happen less frequently in the future, or that, if something happens less frequently than normal during some period, it will happen more frequently in the future.
It is usually accompanied with something like, “Sooner or later my luck has to change," or “If I just keep trying, things will eventually get better.” It is pretty amusing and sad when a gambler in a movie continues to lose and his chip stack disappears. Not nearly so funny when it happens in business.
But I see it happen all the time.
When it happens to me, there are a few reasons I’ve identified for why it does:
- I can’t admit that I am wrong.
- I am too close to it and can’t think about it objectively.
- I think I just haven’t worked hard enough to make it successful.
- I am not open to getting input from others.
- I haven’t sought wise counsel.
- I think it is the right idea at the wrong wrong time...just need to bide my time.
- I am not doing it “with” God. At best, I am doing it “for” Him.
Economists argue that sunk cost should not be taken into account when making rational prospective decisions. The classic example is purchasing a ticket to a baseball game that ends up being boring.
Your two choices are:
- Continue to watch a boring game for five hours, likely buying expensive and low quality food during the journey.
- Leaving the game to do something more interesting and fun.
That makes things a little more clear. I’ve left games early, asked for the check before I got my meal, and even left the theatre during a movie (they usually give us vouchers to come back to another one). Ironically, however, when it comes to more vital things like people (employees, friends), investments, or business ideas, I can’t seem to practice the same discipline as easily.
Based on my experience now with dozens of businesses, most other leaders seem to have the same problem. Sometimes the most powerful and financially beneficial thing we help our clients with is just having the “courage of their conviction” to do the thing they already know they should…but just can’t seem to get done on their own.
It’s not always easy to tell the person that no one else tells…
To do the thing they have somehow resisted doing…
Despite all the mounting evidence that tells them they should.
Difficult, but incredibly valuable. Who is doing that for you?
- Where are you experiencing sunk cost bias?
- How would you know if you were?
- Who have you given the permission to look at the places you are investing time and money, and give you an honest opinion?
- How much is the prospective cost of you weighing “sunk cost bias” in your decision making?