Sunk cost fallacy

Ever found yourself sticking with a decision or course of action, simply because you've already invested time, money, or effort into it? If so, you might have fallen prey to the infamous Sunk Cost Fallacy. I had a lot of times.

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So, what exactly is this trap?

The Sunk Cost Fallacy is a psychological phenomenon where individuals continue investing resources (like time, money, or energy) into a situation or endeavor, purely because they've already invested so much, regardless of the outcome. In simpler terms, it's throwing good money (or effort) after bad.

How does it work?

You're at an all you can eat buffet, and you've already paid the entrance fee. But halfway through, you realize the food isn't all that great. Now, a smart move would be to leave, right? But here's where things get tricky , because you've already paid, you feel like you need to eat your weight in mediocre mashed potatoes just to get your money's worth. Sound familiar? That's the Sunk Cost Fallacy at work. Your decision is influenced more by what you've already spent than by what will make you happy in the present.

How to avoid it ?

Focus on the future, not the past, Instead of dwelling on what you've already invested, consider what the best course of action is moving forward. If I loose an amount of money now will i protect the whole portfolio later?

Cut your losses. If something isn't working out, it's okay to walk away. Remember, what's done is done, and dwelling on sunk costs won't change that. Take the loss and aim for a better set up or a better decision.

Reframe your mindset, Instead of seeing past investments as losses, view them as learning experiences. Every decision, whether successful or not, provides valuable insights for the future.

So, there you have it. Don't let past investments dictate your future decisions. Cut your losses, learn from your mistakes, and always keep your eye on the prize and the prize is always more money down the road.

Posted Using InLeo Alpha