YANSS Podcast 035 – Sunk Costs and the Pain of Vain

The Topic: The Sunk Cost Fallacy

The Episode: DownloadiTunesStitcherRSSSoundcloud

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Every once in a while you will ask yourself, “I wonder if I should quit?”

Should you quit your job? Should you end your relationship? Should you abandon your degree? Should you shut down this project?

These are difficult questions to answer. If you are like me, every time you’ve heard one of those questions emerge in your mind, it lingered. It began to echo right as you woke up and just as pulled the covers over your shoulders. In the shower, waiting in line, in all your quiet moments – a question like that will appear behind your eyes, pulsating like a giant neon billboard until you can work out your decision.

Oddly enough, as a human being, that decision is often not made any easier when quitting is the most logical course of action. Even if it is obvious that it is no longer worth your time to keep going, your desire to plod on and your reluctance to quit are both muddled by an argumentative loop inside which you and many others easily get stuck.

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The Sunk Cost Fallacy

The Misconception: You make rational decisions based on the future value of objects, investments and experiences.

The Truth: Your decisions are tainted by the emotional investments you accumulate, and the more you invest in something the harder it becomes to abandon it.

You can learn a lot about dealing with loss from a video game called Farmville.

You have probably heard of this game. In 2010, one in five Facebook users had a Farmville account. The barrage of updates generated by the game annoyed other users so much it forced the social network to change how users sent messages. At its peak, 84 million people played it, a number greater than the population of Italy.

Farmville has shrunk since then. About 50 million people were still playing in early 2011 – still impressive considering the fantasy megagame World of Warcraft boasts about a quarter as many players.

So, it must be really, really fun. A game with this many players must promise potent, unadulterated joy, right? Actually, the lasting appeal of Farmville has little to do with fun. To understand why people commit to this game and what it can teach you about the addictive nature of investment, you must first understand how your fear of loss leads to the sunk cost fallacy.

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