What's that?
It is people's desire to continue doing something just because they have invested in it (time, energy or money) even though it makes no sense.
In short, it is throwing good money after bad.
Examples abound all around us
Seeing a terribly boring movie till the end just because it's paid for, continuing in dead-end relationships, or sticking to a losing stock because it was bought at a high price can be good examples of this.
Why do people fall prey to the sunk cost fallacy?
According to researchers Daniel Kahneman (Nobel Economics Prize Winner) and Amos Tversky, it is because of loss aversion: People want to avoid losses rather than to make gains.
Organisms that placed more urgency on avoiding threats than they did on maximizing opportunities were more likely to pass on their genes. Hence we are naturally hard wired to do this.
Another reason could be to look good in other's eyes. Even when people know they are onto a loser they don’t want to show it and keep pumping money down the drain.
How do you abandon this fallacy?
Start wasting your food - outside your stomach - not inside it and maybe the same thinking will migrate to your business decisions as well.
Since you have spent time reading my article you might as well implement the learnings.
