The Sunk Cost Fallacy

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Conventional wisdom says that if you give up, you’re a failure. No question about it. But is quitting always bad?

In Think Like a Freak, Steven Levitt and Stephen Dubner argue that quitting early and cheaply can lead to more success and happiness than sticking with an unfruitful endeavor (an unfortunately common occurrence). They back this up with numerous examples from businesses and sports to support their claims.

Why don’t more people quit early on a project or goal instead of wasting even more time, energy, and happiness into it? One reason is a psychological phenomena called “the sunk cost fallacy.” This occurs when a person keeps investing resources into something because they feel they’ve already invested so much that they might as well keep going.

You might have done this when you stayed in a negative relationship because you didn’t want to give up what little that you had. Or maybe you stuck with a job even though you dreaded every moment of it and barely made enough to scrape by. Maybe this is you right now.

Why is this mentality bad for your happiness and success?

Just because you invested resources into something and you cant get it back, doesn’t mean that its best for you to keep dumping more resources into that something to make it better.

If you lose $100 during a night of gambling, spending $200 or $500 more that night doesn’t make it more likely for you to recuperate your losses and come out ahead. Similarly, if you cheat on your diet with a cookie, binge eating for the rest of the day wont help you reach your end goals.

Sometimes, it is better to acknowledge that you did invest time, money, energy, etc. into something that isn’t working out, and call it quits. You can then use the resources you have to find a better way to reach your end goal (or find a different goal that will satisfy the needs of your original goal).

While you may never become that NBA all-star you dreamed of becoming, the sooner you realize you don’t have much chance of success, the sooner you can find a career that you are passionate about and skilled at.

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