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?