Sunk Cost Fallacy | When is it time to let go?

Sunk cost fallacy. When is it time to let go?

“One is anticipated regret: will I be sorry that I didn’t give this another chance? The second is project completion: if I keep investing, I can finish the project. But the single most powerful factor is ego threat: if I don’t keep investing, I’ll look and feel like a fool. In response to ego threat, people invest more, hoping to turn the project into a success so they can prove to others—and themselves—that they were right all along.”

Give and Take by Adam Grant.

The book talks about how those who are willing to give more for simply the benefit of others and not expecting any return. On the other hand, those who take may seem successful but they are not really achieving anything as they are always doing things to benefit themselves.

It also gives insights on how to apply give-and-take principles in your career, how to be a successful giver without burning out, and more that are backed up by multiple research and studies.

The excerpt above hit me while I was reading the book. It was in the chapter that talks about givers that motivate people to see their potential and at the same time, when to realize to throw the towel and move on.

It has the same concept as sunk cost fallacy which according to Google Dictionary is “the phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it, even when it is clear that abandonment would be more beneficial.”

Not giving up

I had invested before in a stock that had just recently gone public. The price was a bargain and I believed in the growth of the business considering the changes and plans for growth here in the Philippines.

I held on to the stock for about a year and for twelve months, I had lost 60% of my investment. During the first couple of months, it started dipping by 20 to 30%. But still, I kept holding hoping that I would earn it back in a year. It did not happen and the company is still below its initial public offering up to now and has not grown for ten years.

Gilas Pilipinas lost in the FIBA World Cup 2023 failing the hopes of many Filipinos. It started with a 0-3 win-loss record and ended with a 1-4. Filipinos had called for Chot Reyes’ resignation who had been the coach of the team for a long time. He had filed his resignation years ago as he knew he could not bring anything anymore to improve the team. He was not allowed until this year’s performance.

I had been delivering great results at work and had been acknowledged by many leaders. I had received various recognitions and awards for the work I had done and been promoted because of this. At one point, I kept pushing on because I knew I could deliver however, it was not the case. There had been multiple times that I had failed and kept remembering that I was one of the best in my field. However, there came a point when I realized that holding on to that belief was not enough to push forward and I had to move on.

These are some stories showing why we fall prey to the sunk cost fallacy. The mere fact that we hold on to past performance makes us hope that it will be the same in the future and we can keep pushing on. Although, pushing forward may be good as who knows, behind the next push is the win we are looking for. We just need to be careful and know when to stop.

Why do we keep pushing forward?

Dissecting the excerpt at the beginning of this blog could help us understand why we fall for the sunk cost fallacy. We could also look at some examples of sunk cost fallacy in our everyday life.

• Giving it another chance. We must have all seen some quotes, memes, or pictures of two people digging underground for gold. One gave up with the gold just one shovel away and the other one continued and got the gold. This is a good motivator to not give up. We’ll never know when our efforts will result in what we have been looking for. But, there would be times when it is an illusion and in reality, that gold does not exist. We have to take on the facts to better make a decision about pushing through or giving up.
• Completion of project. At work, sometimes we lead certain projects and direct all efforts to make them happen. And there would be times when the project does not seem to be feasible and a lot of effort has been put in. We are still inclined to see it through even though undesired results are on the horizon. We hate to be proven wrong.
• Ego. All about ourselves. What will they say? Am I a failure for not making it happen? With all the effort that I had put through and nothing was going right, am I not the person they need? Our egos will shout. Wit would tell us that we could not let anyone tell us we were wrong. Our decisions were right and whatever we chose to do will yield the results. This is the fear of being told wrong and our ego prevents us from stopping and keeps us pushing forward.

Once we understand and accept these, we need to know how to overcome these sunk cost fallacy bias.

Knowing when to stop

In the Give and Take book, the givers knew when to stop. And the only trigger is to understand if it could benefit the other person or the community as a whole. It is not about continuing belief in the potential. It is about understanding and accepting that there may be another way.

The most simple approach would be basing it on facts. For example, in my stock investment, the company had no clear plan for growing the business after a few months after it went public. I was still holding on to my decision that they would eventually come up with something. But that did not materialize.

Coach Chot Reyes knew that he was also at the end of what he could share with the players and the game had changed. He can not do anything anymore but others push him to still coach because of his past performance leading the team. That did not go well.

I was also holding on to my past performance before without realizing that in front of me, it was a different ball game. The work has changed which is something I did not want to do. The people I talked to changed who talked about money every time and I did not want that. It was in front of me and I was blinded by my ego that I could still push when in fact, I could not.

Stop and go another way

We all fall prey to this. We hold on to what we had invested in the past, what had happened, and use that as our motivator that everything will be alright. The past is not always an indicator of future performance. Things change. People change. Everything changes. If we fail to stop and notice the facts right in front of our faces because we are so blinded by our egos, then we are surely going to fail.

Do not let your previous efforts hold you back from changing paths. It does not make you a lesser person. It just makes you stronger than ever. Once you realize this, then you will notice that everything you do becomes a success for you and for others.