Summary of “The trick to learning when to cut your losses”

Ever gone to the cinema and stayed to the end of a film you actually loathed 10 minutes in – or watched yet another season of what was once your favourite TV show? This is the logic that says “I’ve sunk a lot of money into my old car. I can’t just scrap it now. I really should replace that faulty gearbox”.
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.
In his book Thinking, Fast and Slow, Nobel laureate Daniel Kahneman hypotheses that ‘sunk cost’ thinking often explains why firms turn to new management, or hire consultants, at this stage of a project’s decline.
Like a gambler ‘chasing losses’ at a poker table, people stuck in the sunk cost trap will pretend that they have a winning hand.
Making continuous foolish decisions driven by sunk-cost analyses will eventually lead firms to haemorrhage money or market share and consequently grind to a halt.
Making continuous foolish decisions driven by sunk-cost analyses will eventually lead firms to haemorrhage money.
The sunk cost trap drives bad decisions in the billions and trillions, but it also impacts personal finances – individuals waste money needlessly pouring their savings into repairing a property that gains no value.
The s.unk cost fallacy has huge significance on a micro and macroeconomic level – for personal and political decision-making around the world.

The orginal article.