#78 How Do I Decide to Cut My Losses?

The sunk cost fallacy is a bias that skews our decision-making by having us focus on the past effort and resources committed to a particular activity or project rather than its current viability. It means clinging to the past and can be neatly summed up in “I’m not going to stop now – I’ve put too much into this.”

For example, have you ever stayed to watch a movie or a show you aren’t enjoying? You have already paid for the ticket – you are likely not going to get a refund – so why not leave?

In truth, we see this everywhere from in our daily actions to high-level political decisions and it has significant and serious real-world consequences. Major corporate and public projects are pursued despite no longer making sense because of a focus on past effort and money spent.

I experienced this when I founded a start-up in my youth. We had a great idea, a decent team and had taken small investment on board but we struggled to raise additional capital and bring the project to market.

We found endless reasons to extend the project, to try this and that route for funding, largely because we didn’t want to accept that the dream was dead. We probably should have killed the project a year earlier than we did but sunk costs kept haunting us.

This experience, both painful and enlightening, is not an isolated incident. It is a pattern that reveals itself in various facets of our lives and decisions, all tied to the universal struggle with sunk costs.

And those sunk costs manifest on numerous levels. It isn’t only the feeling that we would be wasting the effort and financial costs that have been incurred but also that we would be somehow losing face by showing ourselves to be inconsistent and indeed to have been proved wrong. It requires bravery to stand up and bear this message.

And yet, not to stop is essentially doubling down on the initial decision despite the fact that we now have fresh data showing that the initial decision at the very least hasn’t worked out. True leadership is making those calls and making the best decision today regardless of the past!

Questions in the Image:

  • How do I decide to cut my losses?
  • Forgetting about the past, does this project still make sense?
  • What justifies its continuation?
  • What is my true priority?

Want to Read More Around This Topic?

Thinking, Fast and Slow by Daniel Kahneman (link to Amazon.co.uk) This book delves into the two systems of thinking that drive our thoughts and actions. System 1 is fast and intuitive, while System 2 is slow and deliberate. Kahneman, a Nobel laureate, explains how understanding these systems can help us make better decisions and be more mindful of our actions.

Nurturing Curiosity – Daily Practice: This is part of the Nurturing Curiosity series of tools, insights and questions designed to help nurture curiosity as part of our daily practice. In point of fact, every interaction we have is an opportunity to question what we are observing and how we and others are seeing the world. Also remember that questions come in many forms throughout our day. A conversation I had this morning is asking me questions about how I show up in the world. I clearly brand and promote myself but there are limits to what energise me and I let them guide me. I do what I enjoy, not necessarily what others advise. Why? It feels like my core values, my core story about meaning and purpose, are in conflict with the prevailing superficiality of my culture. What I feel I offer is depth in a sea of superficiality. I know my preference for depth is no more valid than a desire for superficiality and yet the difference is that depth of conversation, thinking and relationship nourish my soul in ways superficiality never can.

About Tom O’Leary

I coach, mentor and teach leaders who are shaping a brighter future.

Leadership can be lonely, the challenges daunting, and the workload overwhelming. I help leaders feel heard, gain clarity, take action, build confidence and thrive! Leaders matter. Their work matters. We need them at their best!

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This means spending time contemplating what might be possible so that when we take action, we can bring all our energy and power to bear.

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