Loss Aversion and the Sunk-Cost Fallacy

www.bbc.com/capital/story/20180914-the-trick-to-learning-when-to-cut-your-losses

What links these examples is the phenomenon of continuing to throw good resources (time or money) after bad, hoping for things to improve when there’s no good reason to believe they will.

In other words, people are loath to cut their losses. We are much more likely to continue to senselessly plough time or money into a project that isn’t working out, in the hope that it will get better, than take a hit and walk away. What drives this is optimism (that, against the odds, the situation will improve) and an aversion to failure.

“We are all susceptible to these biases”, says Dr Jim Everett, a social psychologist and researcher at Leiden University. “But often, we can partially offset them by taking a step back and thinking through the alternatives.”

By Steve McNally

I build products, teams and business lines that blend publishing, marketing and advertising technologies for global brands and startups.