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🧠 The sunk cost fallacy: Why you should cut your losses and move on
We tend to continue investing time, money, or effort into a project or decision simply because we've already invested resources, even when it's no longer rational. This bias often leads to irrational decision-making and significantly impacts project management, product development, and user behavior.
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“If we add one more feature, our product will be a hit!” 🫣 Stop me if you’ve heard this one before. Honestly, if you haven’t heard this before, do you even UX, bro? Our teams invest months of effort into a feature we thought would be a huge success, only to see that it's not getting the traction we thought it would. Instead of pivoting, they just keep spending more money, time, and effort trying to make it work. No one wants to admit defeat and move on. But the truth is, it's often better to cut our losses and focus on other things that are actually driving value.
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Barry Staw’s 1976 paper, “Knee-Deep in the Big Muddy: A Study of Escalating Commitment to a Chosen Course of Action,” explored the phenomenon of Escalation of Commitment. Staw’s study found that individuals become increasingly committed to a decision or course of action, even when it no longer makes sense. This is driven by psychological and social factors, including the sunk cost effect, self-justification, loss aversion, and social identity.
The sunk cost fallacy is a specific example of the escalation of commitment phenomenon, where individuals become trapped in a cycle of investing more resources into a decision or course of action simply because of the resources already committed. This can lead to waste resources, a lack of innovation, and poor decision-making. By understanding the psychological and social factors that drive the sunk cost fallacy, individuals and organizations can take steps to avoid this phenomenon and make more informed decisions.
The sunk cost fallacy can have significant implications for product development and decision-making. When we become overly invested in a particular product or feature, we may continue to pour resources into it even when it’s no longer viable. This can lead to a waste of resources and poor decision-making.
From a product perspective, the sunk cost fallacy can lead to a failure to pivot or adjust course when necessary, resulting in a product that is no longer competitive or relevant. This can be due to a desire to justify past investments of time and effort or to avoid admitting defeat. As a result, valuable resources are wasted on a product or feature that may never see the light of day or provide value to users.
The sunk cost fallacy can manifest itself in many areas. We may continue failing marketing campaigns, maintain insecure or buggy code bases, add new features to failing products, and double down on poor business strategies simply because of the resources already committed, even if they no longer serve our needs.
By recognizing the sunk cost fallacy and taking steps to avoid it, we can make more informed decisions and ensure that our products meet user needs and provide value.
🎯 Here are some key takeaways
1️⃣ Recognize the signs of escalating commitment: Be aware of things like emotional attachment, difficulty admitting defeat, and emphasis on past investments. If you recognize these signs in yourself and others, reassess your commitment.
2️⃣ Don’t let past investments dictate the future: Separate past investments from future decisions. Focus on the current situation, present facts, and evaluate the decision based on its merits. Make decisions based on the best available information.
3️⃣ Implement regular checkpoints: Regular checkpoints help you by reassessing progress and goals, making adjustments, and encouraging transparent communication.
4️⃣ Use objective metrics: Use objective data, such as KPIs, feedback, research, and financial metrics, to inform your decision-making. Don’t make decisions based on personal biases or emotions.
5️⃣ Use the “sunk cost” framework: Ask if you’d still invest in the decision if you had to start from scratch. Focus on the future and decide based on current merits and potential benefits.
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You're more than a designer, because there's more to UX than design
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