When you are weighing a choice or course of action, the most critical factors are future outcomes – There’s little value in previous actions. They are done. Those investments are made. Those outcomes are written. We have to decide based on the future.
Here’s a valuable insight: Humans are prone to diluting their decisions with emotional investments from the past. All that prior effort. All that money spent. The commitment to that other course of action. We can’t just ignore that, right ?
Yes we can. These are Sunk Costs. We will never change their existence or outcomes. And they have nothing to do with a rational way forward.
Because we are still ruled by a part of our brain that is tuned primarily to avoiding being eaten, we will act irrationally to avoid loss. Faced with ‘losing’ all of the prior effort vs committing boldly to a new course of action, our brain will lie. It will tell us to mitigate loss.
David McRaney has a great observation here:
“Sunk costs are a favorite subject of economists. Simply put, they are payments or investments which can never be recovered. An android with fully functioning logic circuits would never make a decision which took sunk costs into account, but you would. As an emotional human, your aversion to loss often leads you right into the sunk cost fallacy.”
This is one of the first rules taught in business school. And even those that know it, are prone to succumbing.
Seth Godin also has an excellent blog post on Sunk Costs. Well worth reading.
Don’t decide on the past. Decide on the future.