https://youarenotsosmart.com/2011/03/25/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.
In psychologist Daniel Kahneman’s book, Thinking Fast and Slow, he writes about how he and his colleague Amos Tversky through their work in the 1970s and ‘80s uncovered the imbalance between losses and gains in your mind. Kahneman explains that since all decisions involve uncertainty about the future the human brain you use to make decisions has evolved an automatic and unconscious system for judging how to proceed when a potential for loss arises. Kahneman says organisms that placed more urgency on avoiding threats than they did on maximizing opportunities were more likely to pass on their genes. So, over time, the prospect of losses has become a more powerful motivator on your behavior than the promise of gains. Whenever possible, you try to avoid losses of any kind, and when comparing losses to gains you don’t treat them equally. The results of his experiments and the results of many others who’ve replicated and expanded on them have teased out a inborn loss aversion ratio. When offered a chance to accept or reject a gamble, most people refuse to make take a bet unless the possible payoff is around double the potential loss.
Behavioral economist Dan Ariely adds a fascinating twist to loss aversion in his book, Predictably Irrational. He writes that when factoring the costs of any exchange, you tend to focus more on what you may lose in the bargain than on what you stand to gain. The “pain of paying,” as he puts it, arises whenever you must give up anything you own. The precise amount doesn’t matter at first. You’ll feel the pain no matter what price you must pay, and it will influence your decisions and behaviors.
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.
In psychologist Daniel Kahneman’s book, Thinking Fast and Slow, he writes about how he and his colleague Amos Tversky through their work in the 1970s and ‘80s uncovered the imbalance between losses and gains in your mind. Kahneman explains that since all decisions involve uncertainty about the future the human brain you use to make decisions has evolved an automatic and unconscious system for judging how to proceed when a potential for loss arises. Kahneman says organisms that placed more urgency on avoiding threats than they did on maximizing opportunities were more likely to pass on their genes. So, over time, the prospect of losses has become a more powerful motivator on your behavior than the promise of gains. Whenever possible, you try to avoid losses of any kind, and when comparing losses to gains you don’t treat them equally. The results of his experiments and the results of many others who’ve replicated and expanded on them have teased out a inborn loss aversion ratio. When offered a chance to accept or reject a gamble, most people refuse to make take a bet unless the possible payoff is around double the potential loss.
Behavioral economist Dan Ariely adds a fascinating twist to loss aversion in his book, Predictably Irrational. He writes that when factoring the costs of any exchange, you tend to focus more on what you may lose in the bargain than on what you stand to gain. The “pain of paying,” as he puts it, arises whenever you must give up anything you own. The precise amount doesn’t matter at first. You’ll feel the pain no matter what price you must pay, and it will influence your decisions and behaviors.
