Essentialism by Greg McKeown

Author:Greg McKeown [McKeown, Greg]
Language: eng
Format: epub
ISBN: 978-0-8041-3739-3
Publisher: Crown Publishing Group
Published: 2014-04-14T16:00:00+00:00

CHAPTER 12

UNCOMMIT

Win Big by Cutting Your Losses

HALF OF THE TROUBLES OF THIS LIFE CAN BE TRACED TO SAYING YES TOO QUICKLY AND NOT SAYING NO SOON ENOUGH.

—Josh Billings

By any estimation, the Concorde jet was a striking achievement in aeronautical engineering. Aboard this passenger plane you could fly from London to New York in as little as two hours, fifty-two minutes, and fifty-nine seconds.1 That’s less than half the time of a traditional plane, making the Concorde the fastest passenger plane in the world.

Unfortunately, it was also an extraordinary financial failure. Of course many great ideas, innovations, and products are. But what made this one different was that it consistently lost money for more than four decades. Yet each time it went over budget the French and British governments poured more and more money in. They did this even knowing that the chance of recouping their continued investments, let alone the original expenditures, were miniscule; with the plane’s limited seating, few orders coming in, and the high cost of production, it was clear that even with exaggerated estimates the project would never be profitable. Indeed, when the British cabinet papers were released under the thirty-year rule, they revealed that government ministers at the time knew the investment “could not stand on normal economic grounds.”2

Why would intelligent, capable British and French government officials continue to invest in what was clearly a losing proposition for so long? One reason is a very common psychological phenomenon called “sunk-cost bias.”

Sunk-cost bias is the tendency to continue to invest time, money, or energy into something we know is a losing proposition simply because we have already incurred, or sunk, a cost that cannot be recouped. But of course this can easily become a vicious cycle: the more we invest, the more determined we become to see it through and see our investment pay off. The more we invest in something, the harder it is to let go.

The sunk costs for developing and building the Concorde were around $1 billion. Yet the more money the British and French governments poured into it, the harder it was to walk away.3 Individuals are equally vulnerable to sunk-cost bias. It explains why we’ll continue to sit through a terrible movie because we’ve already paid the price of a ticket. It explains why we continue to pour money into a home renovation that never seems to near completion. It explains why we’ll continue to wait for a bus or a subway train that never comes instead of hailing a cab, and it explains why we invest in toxic relationships even when our efforts only make things worse. Examples like this abound; consider the somewhat bizarre story of a man named Henry Gribbohm, who recently spent his entire life savings, $2,600 in total, at a carnival game trying to win an Xbox Kinect. The more he spent, the more determined he became to win. Henry said, “You just get caught up in the whole ‘I’ve got to win my money back,’ but it didn’t turn out that way.

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