Avoiding the Sunk Cost Fallacy
Hanging on to something we know we should let go; whether it's a bad relationship, a losing investment or a grudge. This tendency only hurts us more in the long run.
The biggest reason we do this is...
The Sunk Cost Fallacy
A sunk cost is something that has already been spent and is now gone forever.
You do and will have sunk costs in your life
You will emotionally invest in people, time at a job and money on investments. The thing is, many times it will turn out to be a waste!
As people we are driven by two things:
• The Desire for Gain
• The Fear of Loss
Many psychological studies claim the fear of loss is two and a half times more intense than the desire for gain.
Think about that for a minute! We take the pain of loss more than twice as hard as we experience the joy of gain.
No wonder we don't want to book a losing investment or get out of a crappy relationship. The sheer thought of locking that fact in is too much for most to digest.
Even The US$ will soon be sunk.
I wonder how many people will try to hold onto it when its value is clearly lost?
I have seen this and experienced this many times. It is the reason why we hold on to losers much more than we should and sell our winners too soon! The emotional side of trading and investing is very difficult to overcome.
90% of investing is indeed psychological.
"The Sunk Cost Fallacy" is a new term for me but it's certainly not a new experience. I'm feeling in my career at the moment, though I cashed out my crypto during last winter with no clue where it was heading, pure luck there.
I have been known to hold on to failing relationships, and dead friendships simply because I didn't want to the next step to repeat. I have gotten better at letting things go. Which I am happy about.
Congrats on the good fortunate with crypto. And yeah sometimes it is easier to identify and move on with something when you have a set term/definition for what it is you are doing. We all struggle with sunk cost for sure in different aspects of life.
Loss hurts .. Like gambling when you gain you want to keep the winning streak going. It's usually a short high and a long low when you lose.
Yep, or when you give back the early winnings. You feel like you lost and want to keep chasing those paper profits.