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sunk cost fallacy

Sunk Cost Fallacy

6 April 2021

You worked hard for 10 years as an employee and decided to open a cafe in the Senopati area of ​​South Jakarta in Year 11 with an initial investment of 50% of your salary during work.

10 years of saving & living frugally, it's time to reap the rewards of doing business.

You shed sweat & tears for this cafe.

SUCCESSFUL? OF COURSE!

At the launch of the cafe, visitors were booming. So you make turnover projections using visitor data when according this time.

With estimates:

"Wow, in just 1 year, the capital will be breakeven"
"The 2nd year will open 5 branches"
"In the 3rd year we can open 10 branches & buy a new house"
"In the 5th year, we will be able to buy a new island"

Day by day, week into week, the total visitor continues to decrease drastically but you do not budge.

You are sure of success because you have invested 10 years of your time working to build this cafe.

Until finally even 1 year, you have to close this cafe because of high operational reasons for a while can not cover.

 

Here is an example of COST OF SUNK.

when you've tried & tried, how come it doesn't work?

One morning a friend told me that he read Daniel Kahneman's book, "Thinking, Fast and Slow."

Then what is the relationship between this book and Sunk Cost Fallacy?

Kahneman describes two different outlines that humans think. Some are FAST & some are SLOW.

A simple example of these 2 ways of thinking is when you browse an online shop and find a simple t-shirt for 2 million and feel that the t-shirt is very good when used on the model so you order the t-shirt, but when the t-shirt arrives it doesn't match your expectations because of its posture. the model have great posture whereas you don't.

But you have already bought that shirt at a high price?

It's a shame if the shirt can not be use, at the end you force your self to wear it. But the result, this shirt make you looks ridiculous.

Here's an example of a Sunk Cost Fallacy thinking FAST:

you only focusing on the 2 million bucks already spent, whereas if you were thinking SLOW, you'd decide not to wear t-shirts that make you look ridiculous. At a minimum, you will try first & see what your appearance will be like.


To avoid Sunk Cost Fallacy, make it a habit to think SLOW because a QUICK decision doesn't always bring a positive impact.

There are some practical SLOW thinking points to avoid the Sunk Cost Fallacy:

1. Study your context decisions
If you plan to make a business, you have to consider all aspects before making a decision.

2. Validate your decision.
Make sure when you make a decision ask the right people and not just ask people who are only a Yes Man.

3. Be rational, not emotional
Is the most important point. Because success doesn't matter how hard you've worked, you have to always evaluate the progress of what you have been working on and always THINK SLOW.

 

Is it possible to risk everything until your money, effort and hard work on one thing and still fail? Yes, it is very possible.  That is the essence of Sunk Cost Fallacy.

 

Created by: Hendry Wijaya

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