Pursue What Matters
Episode 151: Are You Falling for the Sunk Cost Fallacy?
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Dr. Melissa Smith 0:00
Do you find yourself throwing good money after bad? Sticking with a decision long after you should have abandoned it, telling yourself, I might as well? Well, if these sound familiar, you might be falling for a major trap that can have a disastrous impact, both at work and at home.
Dr. Melissa Smith 0:21
Hi, I’m Dr. Melissa Smith, welcome to the Pursue What Matters podcast where we focus on what it takes to thrive in love and work. So today, we are going to be talking about the sunk cost fallacy. So if you’ve spent much time in the world of the MBA, you’ve spent a lot of time looking at this, I remember this was a hallmark of my MBA program. So today, we are going to talk about what it is right? So you don’t have to have an MBA to learn about the sunk cost fallacy because it shows up lots of different places. So today, we’re going to talk about what it is, we’re going to talk about how do you know if you’re falling in this trap, because it’s a big one. We’re going to talk about why it’s a problem. And most importantly, we’re going to talk about how you can get out of this trap. Because this is something that, like I said, is very common in business. But it’s common in many areas of our life. And so talking about the sunk cost fallacy, I think can be very helpful for us, wherever we want to apply the lesson. And so of course, every week with a podcast, my goal is to help you pursue what matters by strengthening your confidence to lead in one of three areas. So clarity, having a clear vision, and understanding about what matters, leading with curiosity. So increasing your self awareness and self leadership, and then leading and building a community. So how do you work well with others in whatever capacity you operate in. And so primarily today, we’re going to be focusing on leading and building a community, but also leading with curiosity.
Dr. Melissa Smith 2:17
So first of all, with curiosity, we want you to be aware of this fallacy so that you can see it, when it might be showing up for you, and others. And then of course, it’s very helpful when we think about leading and building a community because this fallacy can really trip us up in our team work in making business decisions about whether to fund projects, whether to start new projects. And so it’s very, very useful when we think about our team work and the specific business decisions you might be making. So let’s jump right in. And we’re going to start with our first question, which is, what is the sunk cost fallacy, okay, so this is a cognitive bias. So this comes just from the psychological literature, there are plenty of cognitive biases that we make. And there are some that are so predictable, we’ve been able to study those. And so, you know, the sunk cost fallacy is one of those, it’s a cognitive bias. And there are many names for this cognitive bias. And so I’m going to just share some of those. So sunk cost fallacy is probably the most common, you’ll also hear about the sunk cost effect.
Dr. Melissa Smith 3:35
Another way that you might hear that I really like this, it’s very wordy, but it was kind of pleasing to Me. And that is the escalation of commitment to a failing course of action. The thing about that is it kind of helps us to see what this is. So I’m going to repeat it again, escalation of commitment to a failing course of action. And so the sunk cost fallacy describes our tendency to follow through on an endeavor, if we have already invested time, effort or money into it, whether or not the current costs outweigh the benefits, okay? And so we might be more likely to maintain commitment or even escalate our commitment to something that really is not delivering, right, so so we escalate our commitment to a failing course of action. And that’s because we’ve already we’re already invested. So we already have sunk costs, right? So we’ve invested a lot of time or money into this. And so in a very real way, even if it’s not, it doesn’t have great prospects. We continue to throw good money after bad or we continue to invest time and resources into this prospect or project that really is probably not a good use of our time and energy. This it happens all the time. There are so many examples. In the world of work, but also in our personal relationships, so this cognitive bias can absolutely undermine our decision making. And that’s really the big target that we want to pay attention to this leads to worse decision making. Okay, so maybe you’ve also heard this term, which is the first law of holes, right? It’s simple. You know, I come from a farming family. So I kind of like this. But when you find yourself in a hole, stop digging. And that’s really what happens. When we look at the sunk cost fallacy. We find ourselves in a hole but instead of stopping digging, and getting ourselves out of the hole, we keep digging, we dig ourselves deeper, right? With greater investment of time, money and resources. And boy, oh boy, that is a problem. So what happens with that first law of holes is we often compound that choices by continuing to invest time, money and effort in losing causes instead of stopping our losses right? So staunch the flow, stop the bleeding and switching tactics. Okay, so the sunk cost fallacy is also known as the Concorde fallacy. So who remembers the Concorde right used to be able to take the Concorde from New York to Paris or New York to London? Of course, I didn’t do that most of us didn’t do that, because why? It was so incredibly expensive. And then, of course, they had some major issues with the engineering and of course, there were some some horrible, some horrible incidents related to the Concorde. But the sunk cost fallacy is sometimes known as the Concorde fallacy, because throughout the Concorde project, right? And this was a very big multinational project, the team was building a supersonic airliner, right? So taking the Concorde to London, and no one wanted to give up, right? Like they were really invested in this vision, despite the unstable finances, so it was so incredibly expensive. And yet people were really sold on this vision. And so even though they didn’t have a solid foundation, right, the finances were very unstable. They persisted on this project much longer than they should have. And so the project has now been termed the Anglo French financial misadventure. And that’s because the French and British governments continued funding the airliner even after it was obvious that there was not an economic case for it. And think about some of those smaller decisions that you might make in business that aren’t on the scale of a Concorde. Right? But where you continue investing in a service, or a product, or a project, even when there’s not an economic case for it now, I’ve certainly had that in my business, where it’s like, hey, this, this new service could be so great, there’s a lot of vision and energy and excitement about it. And while it was successful, right, there wasn’t a really strong economic case for it. And you know, the numbers would really need to shift in order for there to be a strong economic case for it. And so, right, we could make one of two choices, right, we could still continue to kind of limp along, because we’re like, Hey, this is good, we believe in it. Or we could say, You know what, this isn’t a good use of our time, or our money. And that’s ultimately what we decided to do. And I think the biggest factor was the time investment. It required so much time, and it was meaningful time. It was good time.
Dr. Melissa Smith 8:37
But when we stacked up the time spent on that service versus time that we could have spent pursuing equally meaningful endeavors that had a stronger economic foundation. It was a no brainer, right? It was very easy, but it doesn’t become easy, right? The thing that makes it hard and how we get caught in the sunk cost fallacy is we get emotionally invested in whatever the decision is. So think about the Concorde. People were really excited about it, they really wanted it to be successful. And so that emotional investment, sometimes, you know, biases, our ability to make difficult decisions that make more business sense. Okay.
Dr. Melissa Smith 9:26
So next, let’s go to the second question, which is, how do you know if you’re falling for the sunk cost fallacy because it’s very common. And so, you know, like I just mentioned, the, the first key to really pay attention to in terms of whether you might be falling for this fallacy is whether you feel very emotionally invested in a decision, despite valid arguments to the contrary, right? So if you find yourself alone in the desert, around this decision, pay attention to your emotions if you find yourself God. mean, you know having very strong emotions about a certain decision or you know product or service, where you don’t have the same kind of emotional investment in other decisions, that would be a yellow flag or a red flag to pay attention to. So some of the other signs that you might want to pay attention to is you feel defensive about a position. So you find yourself defending a poor decision, despite heavy losses, despite there not being a strong economic case, right. So think about, think about that in terms of money, we’re throwing that good money after bad or we just keep it we keep investing money in it, it reminds me of a great documentary on Netflix right now. Sunderland till I die, I just watched it, I highly recommend it. But in the, in the days where this documentary was covering, so it was like 2017 2018, that’s where they kind of started following this team. That team has been around for a long time before that. But the organization was in a situation where, you know, whenever there was a decision to be made, they just requested more money from the owner. And so they didn’t use budgets, they didn’t hold themselves accountable. And they just kept investing money because they could, but they weren’t really investing it in smart directions, right? Like they weren’t making good strategic decisions. And so that’s one thing that we want to pay attention to, is what are we doing with the money second, his time. So sometimes the argument looks like if I spend just a little bit more time with this, it will work. Or if we all push really hard for the next three months, then I’m sure this will be an economic success. And so if you find yourself kind of making some of these rationalizations, we just need a little more time, we just need a little more money. Pay attention to that. So we think about that in terms of resources. So adding more people to a project that has very little prospect for success can be problematic, and then thinking about your health, right. So we think about psychological and physical health. So one of the ways this can show up in our personal life is that we stay in a bad relationship, because you’ve stayed this long already. Now, that doesn’t mean that you shouldn’t think very carefully before you make a decision. But sometimes the approach is, well, I’ve already been here this long, I might as well just stick it out. And that carries some some costs for us in terms of our health and our well being. And so we want to pay attention to that. So so that was one of the second signs is you feel defensive about a position, we want to think about kind of all of those different factors. And then you find yourself alone in defending a position. So it’s you against the board, it’s you against your team, it’s you against the market, right, the market has clearly said, there’s not a market here, we’re not interested in this product or service.
Dr. Melissa Smith 13:03
But you find yourself continuing to defend that position, standing by bad decisions, because it’s difficult to admit that you’ve made a poor decision. And I think this can be a big one, right? This is where we really think about the role of pride, it might be very painful to admit, when you’ve made a poor decision. But I just kind of think, you know, poor decisions happen in the course of business, right? And that the work is how do we learn to make better decisions, we can’t protect ourselves from bad decisions entirely. Because we never know the full, the full playing field, right? Like we don’t have a total vision of you know, what’s happening economically, forces outside of ourselves outside of our business. But this is why having a good clear decision making process is really helpful. Because you can’t, you know, you can’t anticipate everything, but you can develop a good process that can help you to anticipate some, you know, potential concerns. And so sometimes, you know, that would be a sign that you may might be falling for a sunk cost fallacy as you stand by bad decision, because it’s hard to admit that you’ve made that decision. So pride rolls into that we also see shame, right? Like, oh, I should have known better. I’m a bad leader, right? All of these shame messages that don’t help us at all and make it harder for us to actually course correct. There’s also the fear of failure, right? If I abandon this decision, then I won’t be able to be successful people won’t trust me. I can’t admit a mistake. And then of course, what I mentioned at the top of the podcast, if you hear yourself saying I might as well I might as well stay I might as well. You know, focus on this for another quarter. Those are signs that you might be falling for the sunk cost fallacy. Okay, so now let’s go to our third question. So we’ve already talked about what it is. And we’ve talked about how to know if you’re maybe falling for it. And now our third question is, why is the sunk cost fallacy a problem. So hopefully, you already are seeing some hints of why this can be a problem. But in a nutshell, the sunk cost fallacy leads to poor decision making. And not only that, it leads to difficulty coming back from poor decision making, right? So we just kind of pile on poor decisions on top of one another. So it’s a it’s a bit of a snowball effect in terms of poor decisions. So the sunk cost fallacy leads to emotionally burden decisions, right? We’re too emotionally invested in it. And so the sunk cost fallacy psychology is based on the idea that people have stronger emotional connections to things they’ve lost, including time money, rather than to the things they’ve gained, right. And that’s This is known as a negativity bias. And this is a feature of the human brain, right? So from an evolutionary perspective, it’s much more functional for us as humans to be biased towards negativity, right? We it’s important for us to be able to identify the lions on the savanna, way, way, way more important than being able to identify the meerkats, which are very gentle, loving creatures on the savanna, right, because the meerkats don’t pose a threat. And so our brains are absolutely biased towards negativity, and that served an important function. And so how that shows up with the sunk cost fallacy is, we feel worse about things that we’ve lost, we feel worse about money that we’ve invested in a poor endeavor. And you know, that serves an important function as well, because it helps us to learn from the situation. But it also makes it hard for us to overcome the poor decisions. Because we don’t want to admit that we’ve made a poor decision, right. So we stick with a bad decision so that we don’t have to deal with that emotional pain that comes with making a poor decision. So sometimes the belief is, if I stick with it, I can turn this into a good decision. And that’s probably not likely, like you probably have the information, you need to recognize that you have too many sunk costs already.
Dr. Melissa Smith 17:36
So you know, the other thing that happens is we really don’t like emotional dissonance. So what is that emotional dissonance is a fancy psychobabble term for uneasiness, right. So the incongruence within ourselves between what’s happening, and you know, our thoughts and our beliefs and feelings about it. So we don’t like emotional dissonance about a decision right to be able to make a decision, and see that it’s not a great decision that creates emotional dissonance. And so you know, admitting that we’ve made that poor decision leads to even more emotional dissonance. And so to avoid emotional dissonance, we throw more good money after bad we continue digging a deeper hole as a way of avoiding that emotional dissonance as avoiding the pain, the emotional pain of that. And so of course, we avoid that rather than actually correcting the decision by stopping the bleeding, the flow of money, time, resources, and energy. So it’s a big problem because of that emotional investment. And so the money time resources and emotional investment that was spent, cannot be recovered. And that’s the important thing to pay attention to. Those resources are gone. Okay. And so they should not be a factor in the business’s future decisions. Now, this is actually this seems to be the trickiest part of that sunk cost fallacy. And where most of us get caught, is we see those sunk costs. It’s like, Well, we’ve already spent this money, we might as well stick with it. And the point here is, first of all, that’s really not helpful. And the point here is that you that money’s gone, you can’t recover that money, you can’t recover that time. And so you shouldn’t, that should not be a factor in the business’s future decisions, because if it is, then you’ll continue to spend time and money and resources on what might be a very poor decision. And so, you know, you what happens is you commit the sunk cost fallacy when you let unrecoverable costs influence your current decision making.
Dr. Melissa Smith 19:57
So I remember this it was roughly an example we talked about in our MBA program. And it was a fun conversation. And once we had this conversation, it came up in lots of different applications. We even had T shirts made with this image, and the sunk cost fallacy on those T shirts. And it was a conversation about a hotdog stand, right? So you’ve already spent the money on the hotdog stand. So you might as well, you know, be out there all the time, buy the supplies, hire the staff, invest all of your time here, even though you might not be selling a darn hot dog, or you might not be selling enough hot dogs to break even. And what happens for a lot of people’s they’re like, well, I already have the hotdog stand, right? Like, I might as well do this, but they don’t think about the other alternatives. They don’t think about, okay, well, where else could I invest this time and this money, and these resources that actually might be more profitable. So when I think about sunk cost fallacy, I always think about that hotdog stand, and recognizing that those are unrecovered unrecoverable costs, and they shouldn’t influence your future decision making. Okay? So the resource is gone at this point, you shouldn’t use it as a factor in making decisions moving forward. And so like I said, this is where people really get caught in the bias they use that past money spent as a factor in future decisions believing this is that this is where it gets tricky, believing they can somehow recover their sunk costs. You can’t you’re not going to do that. But that belief leads to throw in the good money after bad. It also says right, that the psychological drive to recover things that you lose is a strong motivator that can cause you to make bad decisions. And that, again, is due to that negativity bias. So if we feel like we’ve lost something, or we’ve made a poor decision, we’re going to work really hard to correct that decision. But our efforts to correct that decision are often aimed in the wrong direction, because we’re digging a deeper hole rather than developing a different strategy.
Dr. Melissa Smith 22:06
Okay, so now we’re on to our fourth question. And this is where we really get into solutions. So how do you overcome the sunk cost fallacy, right? Like it’s, it’s common, it’s something that we all might be vulnerable to, but you don’t have to fall for it. So I want to give you, I’m going to give you five solutions to really help you overcome the sunk cost fallacy. So solution, one, be clear about where you are going, and why it matters. So you’ve got to have clarity about vision and purpose, you must maintain a clarity of focus right on the mountain peak. That’s the imagery I like to use. When I think about vision and purpose. You got to know where you’re going, and why it matters. And you can’t be thrown off course. And, you know, we can easily get thrown off course, with the sunk cost fallacy. One of the things that I recognized when I made a decision to abandon a project is, you know, it was a good project, it was a nice project, but it wasn’t primary, and totally in alignment with vision and purpose. And this is where sometimes we can get caught by the idea fairy, right? Like, everyone’s got a great idea. But that can really lead us on a wild goose chase, and can make it more difficult for us to actually make progress towards vision and purpose.
Dr. Melissa Smith 23:38
Okay, so now the second solution, consult your map. So how will you progress towards your vision and purpose, this is where we think about your mission statement. This is where we think about your values. This is where we think about processes and practices. So every time there’s a new idea, every time there’s a good idea, we need to stack that up against our vision and purpose, our mission statement and our values and really look at how aligned is this? Right? And how does, how are we going to fit this in with the other activities that we’re doing as part of our mission statement as part of our progress towards vision and purpose. And so sometimes you can have a great idea that absolutely is aligned, but you just you can’t devote all the resources to it. And that’s really, one of the things that I found with a project is it was very much aligned. But we just didn’t have the resources to make that a winning endeavor. And so you know, that can be painful, I think sometimes to acknowledge because if you’re like me if you’re like many entrepreneurs, right, you’ve got these big ideas, and you want to do them all right now. And what we know is that’s not really practical. So we’ve got to respect our processes and our practices and our resources, right, like we don’t have infinite resources. And so we need to respect those. So what Do you need in order to progress on your journey towards vision, be willing to get off a distracting path, I think that’s so important to keep in mind. So you’ve got to make tough decisions. If what you are pursuing is not aligned with your vision and purpose, you need to abandon an investment, a product or a service, you need to maybe refocus or streamline your products and services, more is not always better. So let’s keep that in mind. And you might need to offload high overhead costs, or distracting endeavors, because they’re gonna slow you down on your journey. So you need to consult your map. And then let’s talk about solution three, which is don’t travel alone. So you need to consult with wise mentors along your journey. Pay attention to objective counsel, especially when you are highly emotionally invested. Right. And this is where we become really vulnerable to the sunk cost fallacy is we’re very emotionally invested. And we don’t want to hear another perspective. So you ask your mentors, you invite feedback, you ask them, What are you seeing that I cannot see, as part of your decision making process, you want to remove emotional investment from the equation as much as possible, right, we know that that’s not entirely possible. But what I would say is, let’s put emotional investment on the shelf, just for a few minutes, I actually think emotional investment can be very helpful. But we don’t want that to cloud your vision of the other factors.
Dr. Melissa Smith 26:33
Okay, so I’m not saying that it’s, it’s always a problem to have emotional investment, I actually think that can be very compelling factor. But initially, we at least want to put it on the shelf so we can engage other factors. So you want to remove a core shelf, that emotional investment from the equation by consulting with objective outsider. So what does my accountant say? What does my attorney say? What is my board say? What is what does the team say? Okay, so if your tribe of mentors or colleagues all agree on a course of action, you deny that counsel at your peril, right. So if we think about a tribe of mentors, a team of mentors, you’ve got those mentors for a reason, right? So hopefully, they’re wise, they have perspective, they have expertise. And so if you find yourself alone against all those mentors, be careful. Because your, your emotional investment may be clouding your vision. So that solution three, don’t travel alone.
Dr. Melissa Smith 27:33
Solution four pause and push, whenever we’re on a worthy endeavor, right, we’re climbing towards vision and purpose, we need to pause and we need to push and there are seasons for both of those, we need to respect both of those. So when I think about pause, I, I want you to slow down the decision making process. When we have a lot of emotional investment, we’re more prone to impulsive decision making, we’re more prone to making decisions quickly to say, Oh, this is my gut, this is what I need to do without actually going through our paces. And confirming that that actually is a good decision. So the question here is, do you have a process for decision making? This is so important, right? It’s not that every decision you make will be perfect. You can’t have all the information you need to make a decision, right? That’s why decisions are risky. That’s why business is risky. But do you can have a good clear process for decision making, right? Where you have trust in yourself that you can make good decisions? So first of all, looking at what is your track record on decisions? What’s your history? Do you have a history of making poor decisions? What can you learn from that? Oh, boy, I see a lot of impulsivity there. Or you know what, I didn’t consult other people or I made that decision too quickly. Or if you look back, can you see that you have a pretty good track record on decisions. Right? So I’m in the midst of actually making a very big business decision right now. And you know, whenever that happens, there’s all sorts of emotions, right. So the biggest one that just cropping up for me is fear. Like, oh, because it’s a it’s a risky decision. I think it’s a smart risk, ultimately. And I recognize that we can’t eliminate risk, especially from these big decisions. But as I have gone through this process, I’ve definitely slow down the process. I’ve talked to a lot of people. I’m trying to ask, like, what do I not know? Give me the perspective that I don’t have because this is a new decision for me. But I’ve also been able to look back in my own life, and I’m looking at what is my track record on decisions, and I can see other places in my life where I’ve made big decisions that have right like when I was at the gate making those decisions, I had a lot of fear and I can See what I’ve done at other times that have helped me to really ensure that those could be good decisions. And so really paying attention to that. And looking at your track record, this is what helps you to build trust. And if as you look back at your track record, you don’t really like what you see.
Dr. Melissa Smith 30:20
Well, that points you to your work that points you to the lessons that point you to you know what, like, I need to consult more people on this decision making process, I need to ask more questions, I need to learn more educate myself about about the factors that I might not be aware of. And so we think about this as decision making hygiene, right? Just like you have hygiene for sleep, you have hygiene, for taking good care of your body design, decision making hygiene is designed to slow you down, consider all options, have some counterfactual reflection, right? So what if I make this decision? What if I make another decision, right? So where does this path lead to, and where does the other path lead to. And that can be really very, very helpful, because you start to see the costs and the benefits. When you do the counterfactual reflection, you can also I think this is very helpful.
Dr. Melissa Smith 31:19
So I’m not a fan of future tripping, which is when we catastrophize into the future and worry, but I am a fan of time traveling. And we want to time travel to both the past and the future, right? We time travel to the past, to really look at our track record on decisions to learn the lessons from our previous decisions. And we also want to time travel to the future, right to be able to say, Okay, if I make this decision, what can I expect, right? There’s no guarantees that what will this if I make this decision now, how does that set me up? How does that set the business up for the future? And this is very important and very, very valuable, right? I’m, I’m definitely working with this right now, with the decision I’m making. It’s like, oh, this is, this is kind of a stretch decision right now in the present. But I can see, by taking this smart risk, now by making this decision. Now, it really sets up the business for success long term. And so time traveling can be really helpful. Okay, part of pausing and pushing is learning to live and the reality of your choices. Now, this can feel painful, especially if looking at the reality of your choices. You see, like, Oh, I’ve made maybe some poor decisions. So this is where we want to do a cost benefit analysis, right of the past, the present and the future. So if you look at, you know, this project or this decision, what has been the cost benefit analysis for this project? Historically, right? Like, oh, boy, we’re bleeding out like, everything’s red. We’re not in the black at all, what’s the cost benefit analysis, right now in the present? And it might be, you know, what we’re breaking even. But that’s about it. And then you think about what is the cost benefit analysis in the future. And maybe it’s, you know, what we really think those, you know, the numbers are going to trend up as far as like the people we can serve. And if we can stay on this track, we can see that the future looks really bright for this project, this prospect, or maybe you look at your numbers now in the present, and you’re like, they’re not trending in the right direction, right, like, so that cost benefit analysis for the future is not looking so bright. And so you’ve, you’ve really need to be willing to look at those choices that you’ve already made. And, you know, do some time probably related to those. And this is where we want to be so careful about this idea of we’ve already invested this much of time, money and other resources, and asking, how much more will we need to invest to get this project moving forward?
Dr. Melissa Smith 34:05
That’s an uncomfortable question. That’s a gut check. And, you know, so if it looks like, boy, we’re gonna have to invest a whole bunch more into this. And that is without any reasonable guarantee that our prospects will improve, well, then you probably better not make that decision. So that’s one of the ways that we really need to pause right and gather information and be honest with ourselves. Part of that also is, show me the numbers right? So you really need to immerse yourself in data in your numbers, in your costs in your profitability, in the time investment, so that you can be clear eyed about decisions when we avoid painful numbers. This feeds emotional attachment and it makes us more likely to make a poor decision or more likely to maintain a poor decision. And so you’ve got to, you’ve got to do the painful work of jumping into the numbers. And then of course, right, so we’re talking about pausing gathering information, slowing down that process. But then we also need to push. So we do need to take action, we take considered action, we want to have a bias for action. But it’s really important to pay attention to the fact that this is not impulsive action. It’s not emotionally laden action. So be willing to embrace smart risks, and abandon foolish risks, right, so study it out, do your work, don’t impulsively act, do your research. But then take the next step, no matter how small so I think about this big decision that I’m dancing with. And that’s, I think that’s the best way to describe it, like it is a dance, because it’s not a decision, that’s just one and done made. But every time I get overwhelmed, which has been plenty, or every time fear crops up for me, I just remind myself, just take the next step. And I go back to, to the strength of my decision making process, I have built trust with myself and with others, over time that I can make good decisions. And it doesn’t mean any of those are perfect decisions. But it’s looking at, it’s looking at the horizon, and being able to pay attention to what’s the next step and being willing to take that no matter how small. And as you take each step, you gather more information, right? You gather more confidence, or you gather more feedback, they’re like, oh, wait, this isn’t a very good decision, right. And so it’s really important, you won’t gather that information without action without taking some action. Okay, so now let’s move to the fifth solution. And that is to reflect, right. So that’s another way that we could put this is we need to, we really need to invest in distress tolerance, we need to manage our emotions. So the emotions are a big part of this fallacy. It creeps up when we’re emotionally invested. And so recognizing that that emotional investment can bias our view, and make a clear eyed decision more difficult. So, you know, really, make sure you’re using some good coping skills to help you stay grounded. So I made a decision. This was several years ago now to leave a job. It was a job that was a really great fit for me for quite a while. But I recognize I got to a point where I knew I needed to leave it. And I labored over that decision, I questioned myself, and I created suffering as a result of that process. And you know, ultimately, I was able to make a really great decision for myself. But it was at a very painful emotional cost, I created more suffering than was necessary.
Dr. Melissa Smith 38:01
So now, when I have a big decision to make, I think back to that decision, and I asked myself, How am I letting fear saw my progress? Right? So you don’t want to be ruled by fear you want to be informed by it has a lot to teach you. But you don’t want to be ruled by fear. So asking yourself, How am I letting my emotions get in the way here, and one of the big ways that fear stalls our progress is it just moves us to avoidance, it moves us to indecision, which is of course making a decision, but it’s a very passive decision, a part of reflection, right. So we just talked about managing your emotions, but we also want to embrace regret. So I’m going to be talking about regret. Next week, I’ve got a great book review about that. But you know, experiencing regret, can actually fix this cognitive bias by getting folks to think about a previous escalation of commitment, right? So a previous sunk cost experience, and then to regret it actually decreases your likelihood of making that error again. So that willingness to look back on the things you regret, and learn from it helps you to not make that mistake again. Right? I think we’ve all had experiences like that. So you can also ask yourself, What will I tell myself five years, or even one year from now about the decision? And then which is more likely? Am I more likely to have regret about making this decision? Or am I more likely to have regret about not making this decision? And so join me next week because I’m going to be talking a lot more about that regret has so much to teach us. But for today, I just want to recap those solutions.
Dr. Melissa Smith 39:47
So how do you overcome the sunk cost fallacy? One, be clear about where you’re going and why it matters to consult your map? Are you on track? Solution three, don’t travel alone. Make sure You’re enlisting mentors, and various perspectives solution for pause and push, we want to slow down the decision making, we want to get into the details of our choices, right. So we think about cost benefit analysis, we think about showing me the numbers. And then of course, we need to push we need to take considered action. Even if it’s a small step, be willing to take the next step because that’s how you actually progress along your path. And then solution five is Reflect, you’ve got to manage your emotions throughout all of this. So this is when we think about distress tolerance. And then the last part of reflection is to embrace regret. Learn from your past decisions that bring you regret, so you don’t repeat them. That’s so incredibly important when it comes to the sunk cost fallacy.
Dr. Melissa Smith 40:53
So head on over to my website to check out the show notes with the resources for this episode at www.drmelissasmith.com/151-sunkcost. So one more time, that’s www.drmelissasmith.com/151-sunkcost and I have some links to some of the research around the sunk cost fallacy. So if you’re interested in that, you can find that at my show notes. I’m Social, I’m on Instagram. I’d love to connect with you there @dr.melissasmith. And I want to know what you want to hear about so I would love to hear what could be valuable for you. In the meantime, I’m Dr. Melissa Smith. Remember love and work, work and love. That’s all there is. Until next time, take good care.
Transcribed by https://otter.ai