So, we’re waving goodbye to the old year, and I gotta tell ya, BBC Capital really dished out some gems. They’ve been serving up juicy stories, killer advice, and insights from the pros, all so you can kick butt in the new year.
Just so you know, Madeline Grant’s the mastermind behind all the smart talk at the Institute of Economic Affairs.
Imagine this: you’re out for a quick run to grab some milk. Halfway there, it hits you – that darn store’s shut tight on Sunday afternoons. And your brain’s telling you there’s no other store for miles that’s open. But hey, you’re already out and about, spent a good 10 minutes walking, so why not just finish up the trek, right?
Now, if you weren’t itching for a good walk, this kinda thinking is straight-up bonkers. But you’d be surprised how many people get trapped in this wacky way of making decisions, even when the stakes are sky-high recommended you read.
That Little Voice That Whispers, “”Keep Throwing Cash at That Beater Car””
It’s like a gambler desperately trying to win back losses. You know that old British saying, “”don’t chuck more cash into a money pit””? That’s the vibe. The eggheads call it the sunk cost fallacy, and man, it’s everywhere.
We’ve all been there, right? Ever stuck it out through a movie that made you want to gouge your eyes out after the first 10 minutes – or pushed through another season of a show that used to be your jam? That’s when that sneaky little voice says, “”Dude, you’ve already blown a stack on that clunker of a car cnn. You can’t just ditch it now. Fix that busted gearbox already!”” And that’s not even touching on folks who stick it out in cruddy relationships, just because they can’t stand the thought of all that time going down the drain.
What all these facepalm moments have in common is chucking good stuff – be it time or dough – after bad, hoping against hope things cbc will magically get better even when there’s zilch reason to believe they will.
In plain English? People just hate to admit defeat. We’re a stubborn bunch who’d rather keep shoveling resources into a black hole of a project, praying it’ll turn around, than just take the L and move on. We’re running on a dangerous combo of blind optimism and a real bad case of failure-phobia.
Get this – even critters like mice and rats get suckered by the sunk-cost gag. Some brainy types over at the University of Minnesota found these little guys keep hanging tight for their treats in lab tests, just like us humans waiting for a good laugh from a video, the longer they’ve waited, the less likely they are to back out. Some of these science whizzes reckon there’s gotta be some old-school survival reason we’re wired with this totally illogical quirk.
Hit the workplace, and this stubborn clinginess to cash that’s gone for good can blow up big time. For the little guys in business, it could mean dragging your feet on firing someone you’ve trained for months, even when you knew from day one they were a no-go nytimes.
But the same stubborn spirit sends people hurtling toward epic financial faceplants. Staring at only the future shiny pennies means they totally blank on the wads of cash already burned through. It’s not hard to see why.
Let’s say you’ve sunk £10 million into some project that’s tanked. Convincing yourself to toss another £5 million in feels way better if you only think about the new cash, not the total £15 million pit. Plus, nobody wants to wear the dunce cap by calling it quits, right?
In his book “”Thinking, Fast and Slow,”” Nobel prize-winner Daniel Kahneman suggests that this whole sunk-cost comedy is why companies often pull in fresh bosses or pay out the nose for consultants when their projects are circling the drain. It’s not that these newbies are necessarily sharper than the old guard – they just don’t have the same emotional baggage stopping them from yanking the plug on a lost cause.
It’s like watching a desperate poker player at the casino pretend they’ve got the golden hand. Nick Leeson, the notorious “”Rogue Trader”” who single-handedly tanked Barings Bank back in ’95, played the same losing game, trying to dig himself out of a disastrous hole with more bad bets.
“”Rogue trader”” Nick Leeson racked up a jaw-dropping £827 million in losses (Credit: Getty Images)
Keep making these wacko calls based on sunk-cost thinking, and any firm will start bleeding cash and market cred until it’s flat-out dead in the water.
Politics is another beast with fewer safety nets. It sure doesn’t help that the whole world seems to think political backpedaling is a sign of weakness – that just eggs politicians on to double down on spendy blunders.
Throwing Away Big Bucks Because of Stubborn Choices: The Sunk-Cost Money Pit
Man, let me tell you – you see this stuff happening everywhere. Take public works, for example. You’ve heard about the UK’s ‘High Speed Rail 2’ fiasco, right? It’s a classic example. They’re in the hole for a whopping £50 billion (that’s $65 billion in US cash) and the meter’s still running!
And who could forget Nancy Reagan, right? She was all over TV with that ‘Just Say No’ gig during Ronnie’s ‘War on Drugs’. (Image courtesy of Getty Images)
Then there’s Japan – talk about a spending spree on infrastructure. It’s like a non-stop shopping binge with no end in sight. It’s gotten so bad that they’re drowning in debt, leading the pack worldwide. And what do they have to show for it? A bunch of projects that didn’t even give their economy a tickle, including some ‘bridges to nowhere’s that are, well, going nowhere.
Over in the US, they decided to take on drugs with this massive crackdown, and what did they get? The biggest collection of prisons you’ve ever seen. But has it stopped drug abuse? Not by a long shot. Yet, try as they might, politicians can’t seem to shake loose from this beast they’ve built.
This whole sunk cost thing isn’t just about the big bucks and fancy projects. It hits us regular folks too. We pour our hard-earned dough into fixing up a place that won’t even bump up in value. Total facepalm, right?
The UK’s speed train project has been getting some serious side-eye for burning through cash like nobody’s business. (Getty Images got the snapshot)
See, the sunk cost fallacy isn’t just playing around; it’s messing with decisions big and small, from global economies to your wallet.
But hey, the silver lining? If we wisen up to these brain farts, we might just steer clear of these money pits and even call out the big shots when they start digging one.
“We’re all human, right?” says Dr. Jim Everett, a whiz at psychology over at Leiden University. “But sometimes, we can kick these habits to the curb if we just chill and think about what’s up ahead.”
So, when you’re at a crossroads, wondering if you should stick to your guns or bail, ask yourself: ‘Will I win or lose if I keep on keepin’ on, and what about if I bail out?’
Still scratching your head? Dr. Everett throws down some advice. Take a trip down memory lane and check out the moves that got you here. Ask yourself the tough questions – what’s real and what’s wishful thinking?
“If I could hit the replay button on this choice, would I do the same thing? If not, what’s got me thinking twice?”
It all boils down to a no-brainer, really, and the stakes are sky-high. It’s like Poker 101: know when to walk away from the table.