Overcoming the Sunk Cost Fallacy: Knowing When to Walk Away from a Bad Business Move

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The Sunk Cost Fallacy is the misconception that an individual should continue an endeavor or objective as a result of previously invested resources like time, money and energy.

Have you ever forced yourself to sit through an awful movie because you paid $10 for a ticket?

Have you ever stayed in a bad relationship because you had invested 2–3 years of your time with that person?

Have you ever refused to throw out a shirt that you hate and have never worn just because you spent $35 on it?

If you answered yes to any of these questions, you are guilty of partaking in the sunk cost fallacy.

Those who are most guilty of the sunk cost fallacy are avid gamblers — spending $100, $200, $300 on the Blackjack table, believing they are in too deep to walk away and choosing to stick around in hopes that their luck will turn around.

Those of us who are not gamblers, can obviously see this way of thinking to be absolutely ludicrous.

So, why do we continue to think in this way in regards to business and life?

How to Eliminate The Sunk Cost Fallacy Way of Thinking in Business

Having a three year relationship with a client who has recently started taking advantage of you does not mean you should stick it out in hopes they will come around.

No, you should find a new client that treats you better.

Spending $5,000 on a new marketing strategy that ends up not working doesn’t mean you should spend $5,000 more in hopes that it eventually will work.

No, you should walk away from the strategy and try something new.

While it is difficult, it is important to remember to never get emotionally or mentally invested in your work, because this clouds judgement.

The old cliche, it’s just business, has lasted through the ages for a reason. At the end of the day, win or lose, it’s just business.

Don’t continue to throw money at a loss in hopes that it will one day become a win… otherwise, you will be out of business.

By Cole Schafer

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