Don’t Be A Sucker for Sunk Cost Fallacy

Sunk Cost Fallacy

Sunk cost fallacy is the idea that you don’t make decisions based off of future value, but rather based off of what you’ve already invested. If you were placed into the same situation, rationally you would divert, but since you’ve already invested some effort or value to get there, you continue on the path.

I Fell For It Today

I was on a hike this morning on the island of Kauai. Our intended destination was Waialeale Blue Hole.

Weeping Wall — Hawaii Guide

We made a wrong turn early on in the hike and ended up on a trail that was rarely trafficked. The trail was muddy from intermittent rain and overgrown from the lack of foot-traffic.

There’s a trail there somewhere

We didn’t see any of the landmarks mentioned in the trail’s description, yet we began to rationalize the decision to continue on. Maybe the gate we were looking for was metaphorical? We’ve already gone 1.5 miles, maybe if we just go around another couple bends, we’ll see the landmark?

We had already invested effort, and we fell for the sunk cost fallacy by continuing on even after knowing we were likely not on the right trail. We continued another half mile before turning around and hiking all the way back out.

If we had the suspicion of the trail being wrong from the start, we would have turned around instantly and checked out the neighboring trail, but since we already invested effort, we made the irrational decision.

On The CORRECT Path

Applying This To Business

Pivoting as a software company is so common today, it’s almost seen as a right of passage.

Focusing too much on what you’ve already built or what you’ve previously mapped out, can lead to continuing down the wrong path.

When I first built Cloud Campaign, it was a social media publishing tool built solely around ‘triggers’. You could automatically post to social media based off of certain weather constraints or if terms related to your company were trending.

While people were interested in the idea, it was clear that the original few hundred users were uncertain whether or not the product actually solved a problem for them.

Receiving this feedback, we quickly decided to pivot focusing more on scheduling and recycling posts.

Since the pivot, we’ve started generating revenue and sustaining customers.