I have always been a great fan of Michael Levitt’s book “Freakonomics”. In my early post-college years, it was one of the very few books which shocked my brain into looking at things in radically different perspectives. I have used that book as a guide post when faced with challenges in life and work, and also a tool to keep my brain sharp in general. I think that book is particularly important now given the amount of propaganda and fake news that’s bombarding us every minute of every day. If we do not train our brains to think objectively and from different perspectives, we are bound to believe some really crazy shit, and cause ourselves and our society immense harm.
Recently, I have read the third installment of this series, “Think like a freak”, and really enjoyed it. Meant as a how-to guide to apply the principles of the earlier two books, this one was a compelling read full of useful practical tips. With great examples of mental blind spots we live with every day, and ideas about working around them, this book packs a good punch.
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Although every chapter is used to describe some really useful stuff, he saved the best for the last. “Sunken Cost Fallacy” has to be by-far the worst enemy of success and happiness, and I couldn’t believe what I was reading as that reality dawned on me. Even with all the life experiences I have had so far, and all the reading I have done, this never came up as a real thing. And once I realized it as a thing, it made perfect sense.
Sunken Cost fallacy has caused untold misery to mankind. It makes people make bad decisions in life, work and many other aspects. Essentially what sunken costs fallacy forces us to do is to pressure us to pursue a losing proposition. That’s it. Simple as that. Society has put too big a price on failure, and even a bigger price on those who admit failure. This is why military generals send their troops on suicide missions, couples stay in unworkable failed relationships, students pursue useless degrees among many other things.
As I thought about this, the very first thing that came to my mind was the generations of hatred between people of warring countries. Kids in the younger generations just inherit that hostility from their parents and grandparents, with crafty politicians and leaders making sure their minds are filled with stories of their heroism and their enemies barbarism. If someone in the younger generation wants to extend an olive branch and end the enmities, many will object to those moves immediately. “What about the hundreds of thousands who died protecting our land?” they ask. This is a common theme between my motherland and the neighboring Pakistan, and I am sure its very similar in the Koreas and the middle east. If only someone says, “Enough is enough” then there is a real possibility of saving many lives and bringing about prosperity.
Similar is the deal with college education. Many go to college, and most of them enroll in courses because they either think they are passionate about the subject, or there is a potential to make a living. But, in my opinion, many also realize pretty early on that it is not for them. They would be better off either quitting, or at least changing tracks, but refuse to do so for the fear of being branded quitters and failures. Very few will go down that route, saving themselves thousands in tuition and more important valuable years of their prime which could be easily used for something more practical and meaningful.
Off all these things, the best example I could provide is what happens in the corporate world. Many companies embark upon these ambitious projects without thinking through or in some cases because of organizational politics. Some of the smart managers detect early on that such projects are not going anywhere. But instead of being branded a loser, and with their jobs at risk, they try to flog the dead horse hoping for a success. I have seen many software implementations go down this route. Millions of dollars spent in software costs, development and licensing and even when their employees hate the finished product, they impose upon them this horrible product, because they feel the need to justify the millions spent on it. At the end, they end up costing the company millions more in lost productivity and low employee morale.
So if there is one thing I want to take away from this book, was the confidence to cut my losses and quit my losing propositions. There are many hobbies, career trajectories, personal goals etc. that take up my time, money and energy. Some of them, fit into the category of sunk costs. Time to cut those lose, and spend the time and energy on winning positions. Same goes with my advise to my customers. Just because you spent a fortune on a particular project, doesn’t mean it is actually worth carrying on with it. There needs to be a long hard look at it, and an honest evaluation of what your options are, including in many cases, scrapping it and starting over.