Archive for ‘relationships’

January 13th, 2015

Giving up: The Sunk Cost Fallacy


Depressed woman sitting on stairs

Since it’s a brand new year, I want to talk a little about being a quitter. But I’d rather frame it as change, growth, giving up the old, and embracing the new. It sounds glitzy but really, it still feels like loss, plain and simple. And that’s worth thinking about.

Ever wonder why you don’t let a thing go when you should? Blame it on sunk cost fallacy, a financial term that refers to the tricks your mind plays on you when you are knee deep in an investment and coming up dry in returns. It’s also a psychological tendency, and frankly, a weakness many people have, especially me.

Here’s how it goes. You have just spent $500 on that new opportunity to make a huge return on that crazy-smart investment. Let’s say it’s money to start a new business–you are going to start a business selling vitamin supplements, bear with me here. Now, the first quarter has produced zilch in terms of profits. This was supposed to be your retirement plan here. You can’t give up without a fight. Because you’ve spent that $500, and because your future depends on it, it’s a little hard to admit defeat—even when you find yourself paying another $1,000 to try to make that first $500 matter. No way you’re gonna let it be spent for nothing so you keep investing and you keep spending because if you don’t, then you KNOW you lost that hard earned money.

So now you’re in for $1,500 and still the opportunity is sinking. What do you do? Well of course, you pony up another lump of cash, and then borrow a little more from your mom or dad before you’re finally willing to admit to yourself that now you are broke and maybe this was a really bad idea.

Sound crazy? Not really. You, yes you,  do this way more than you think. Like…when you already paid for that expensive dinner, so you might as well eat every bite even though the serving was huge and you’re trying to lose weight…and you’re starting to feel a little sick. A stock that you purchased for $90 a share suddenly plummets to $35, but you hesitate to sell. You’ve lost too much–no sense in throwing away all hope that it might come back! Whereas if you’d spent $30 on that same stock, you might be eager to sell…NOW.

Apply this to regular life and see if it’s any different. Why do we stay in bad situations? Jobs. Relationships. Friendships. Business partnerships?

Because the cost of giving up seems greater because of the price we already paid, even when it isn’t. We are willing to lose more than we invested when that investment is significant to us. Yes, please step aside so I can throw another five years into a failing enterprise, because don’t you realize I have already given my best years to this thing? The sunk cost fallacy makes you do things that are not good for you–things that will get you in trouble.

Sometimes it’s okay to quit.

It’s just hard to set boundaries on something we believe in–something important to you–even if the best thing we could do is just…stop. There is a time and place for limits. A time for surrender. Not surrender to defeat…but surrender to a power greater than you.

We like to think we are in control of things. But that’s just an illusion. There are times when a greater peace can be had in knowing when to strategically bow out and let God handle it. In those times, the greatest acts of love and growth are found in that moment when we finally surrender control and allow God to handle the details no matter what we stand to lose.