
Wednesday Feb 07, 2024
The Daily Founder Day 005: Sunk Cost Fallacy
“One of the most commonly cited human irrationalities is the sunk-cost fallacy, in which people continue to invest in a losing venture because of what they have invested so far rather than in anticipation of what they will gain going forward.” - Steven Pinker
Why do entrepreneurs fall prey to this cognitive bias?
For one, it’s the emotional investment. Entrepreneurs often have a strong emotional attachment to their ideas and ventures, making it difficult to detach from past investments and make rational decisions. Paired with a Fear of Loss, losing the time, money, and effort already invested it can seriously cloud our judgment and lead to a reluctance to cut losses.
And then there’s the typical Confirmation Bias many Entrepreneurs have as they selectively seek out information that confirms their initial decision and ignore evidence that suggests a change in course.
A tricky mix that can have heavy consequences
Wasted Resources, Losing time & money mostly, Delaying Pivoting, damaging your reputation (often more so than changing course), …
So how do we overcome the Sunk Cost Fallacy?
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