WHY YOU SHOULD FORGET THE PAST
\nThe sunk cost fallacy is most dangerous when we have invested a lot of time, money, energy or love in something. This investment becomes a reason to carry on, even if we are dealing with a lost cause. The more we invest, the greater the sunk costs are, and the greater the urge to continue becomes.<\/p>\n
Investors frequently fall victim to the sunk cost fallacy. Often they base their trading decisions on acquisition prices. \u2018I lost so much money with this stock, I can\u2019t sell it now,\u2019 they say. This is irrational. The acquisition price should play no role. What counts is the stock\u2019s future performance (and the future performance of alternative investments). Ironically, the more money a share loses, the more investors tend to stick by it.
\nThis irrational behaviour is driven by a need for consistency. After all, consistency signi\ufb01es credibility. We \ufb01nd contradictions abominable. If we decide to cancel a project halfway through, we create a contradiction: we admit that we once thought differently. Carrying on with a meaningless project delays this painful realisation and keeps up appearances.
\nOf course, there may be good reasons to continue investing in something to \ufb01nalise it. But beware of doing so for the wrong reasons, such as to justify nonrecoverable investments. Rational decision-making requires you to forget about the costs incurred to date. No matter how much you have already invested, only your assessment of the future costs and benefits counts.<\/p>\n
Rolf Dobelli<\/strong><\/em><\/p>\n <\/p>\n Image: ‘Ace of Spades’ by Richard Swain | https:\/\/www.flickr.com\/photos\/128562165@N06\/16614850351\/in\/photostream\/<\/p>\n","protected":false},"excerpt":{"rendered":" WHY YOU SHOULD FORGET THE PAST The sunk cost fallacy is most dangerous when we have invested a lot of time, money, energy or love in something. This investment becomes a reason to carry on, even if we are dealing with a lost cause. 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This investment becomes a reason to carry on, even if we are dealing with a lost cause. 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\nThe Art of Thinking Clearly<\/strong><\/em><\/p>\n