The Sunk Cost Fallacy In Business - Deepstash

The Sunk Cost Fallacy In Business

When running a company, many entrepreneurs fail to quit, change direction or pivot their business model, unable to admit that what they were doing isn’t working, or that they were plain wrong in their decisions.

The Sunk Cost Fallacy is the primary reason for this gross error in judgement, as entrepreneurs believe that if they quit now, all the time and money investment would go down the drain.

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As a well-known cliché goes: The definition of insanity is doing the same thing over and over again, and expecting a different result.

Be it an activity, a job or a relationship, we need to quit if things aren’t working out. We are too afraid to quit, and in today’s uncertain, complicated world, we are better off moving on.

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The Problem With Quitting
  • It has been internalized in us since childhood that we should never give up, and that quitting is bad.
  • Many of us are stuck in the wrong jobs and due to this idea of not quitting, we waste a lot of productive years.
  • We don’t quit because of a cognitive bias known as the sunk cost fallacy, which basically means we continue to do something that is not helping us, but because we have already invested our time, energy and resources.

Example: We don’t quit reading a half-finished book even if the content is not helping us in any way.

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