TRANSCRIPT:
The sunk cost fallacy is a powerful, real psychological effect. You can see it at play in both personal decisions “But, I already bought X…so I have to pay Y for upkeep.” and in the decisions of corporations “We worked so hard on X project…it’s 90% to completion. We may as well pay our employees to have it finished.” In both cases, X has been invalidated by a new idea, technology, or item. Yet, in both cases, X is still pursued because we spent money or time on it, and we like to see outcomes from those investments. This effect can also explain why gamers will pour time and energy into finishing the narrative of a game, even if they’re not enjoying it.
What’s the solution?
Hit the reset button. Take a step back and pull the plug. Redesign it from the ground up. Stop doing it.
Financial planning often addresses this in the form of an annual review. After recapping all of our work together over the year, I will often ask my clients: “What did we miss?” they will often say “Nothing, we did great!” So then I follow up with a simple. “Okay, if you were to design your ideal life, what would be most important to you?”
Sometimes my clients roll their eyes at me then, and I laugh. We almost always uncover something new in that conversation though. It goes back to human nature. Our plans are invalidated by our new desires. You may have thought you wanted to buy that house and that would be the pinnacle for you, but once you have it…well, there’s a new pinnacle. We never fully self-actualize. There’s always another level.
How do you hit the reset button personally, especially in a time of chaos like we’re in right now?
The answer for you will likely be deeply personal. What puts you in the state of mind most necessary for reflection and planning will be your own solution. I can tell you that what I will be doing this weekend is kicking off a week in the mountains on my own. I’ll be sitting in solitude, writing down my thoughts and vision for the next stage of my business and my life. I’ll redesign things as if I was starting from scratch. I’ll reflect, think, and analyze all the new data and thoughts from the last six months that I can to come up with. That will determine the next step.
That said, my business likely won’t change dramatically. I’ve been doing this process for the last three years, every year. How I’ve gotten the time, such as my mountain retreat this weekend, has been different. But, the core idea and process has remained the same. I simply know that I need to look at things from the outside every so often. Otherwise, I’ll fall prey to the same fallacy and human tendencies we all do.
So hit reset. Look at your life anew. If you were starting from now, with the resources you have and no major constraints, what would you do differently?
