Today’s post has been kindly written by Marielle Lea, a passionate creative who writes for Coupon Chief on topics related to business strategy, e-commerce, personal finance.
When it comes to big decisions for your career, business or even life, sunk costs are everywhere. You probably have experienced sunk cost fallacy just this past week, maybe without knowing!
First, do you know what sunk costs are? How to spot them? How to keep yourself and your team on the right track?
Coupon Chief has created an infographic with some helpful tips and tricks to help you avoid sunk cost fallacy.
What is Sunk Cost Fallacy?
The sunk cost fallacy is a form of cognitive bias that occurs when we place value on a previous decision simply because we’ve invested time or money into it –– even if that decision no longer serves us.
Let’s have a look at what it looks like in real-life:
Nokia, a top phone company in the early 2000s, fell victim to the sunk cost fallacy when new competitors like Apple and Google began revolutionising the market. Even after the introduction of the first smartphone, Nokia’s executive leadership continued funding Nokia’s proprietary (and now outdated) operating system.
What happened? They thought they had invested so much in their operating system that it was better to keep working on it than cutting the losses and developing something suitable to future trends.
While Nokia had previously been successful with their technology, they now found themselves unable to catch up to more advanced companies. They eventually lost their place as the top brand in the industry and today, still struggle to keep up.
How to avoid sunk cost fallacy?
Sunk cost fallacy is not just a trap companies fall into. It affects any area of life, career or business… where impactful decisions are involved (which is pretty much all the time!)
Sunk Cost fallacy can make you take the wrong turn because you think you’re going to waste the money, time or effort you invested in the process.
But in reality, you won’t recover any of it: the opportunity to create value has been missed already. Better to embrace a positive perspective then!
To help you identify and avoid sunk cost fallacy in leadership and life, check out the infographic below: