Saturday, May 31, 2014

Be free, ignore your sunk costs

When a soccer team loses a match we tend to say ‘the team lost’. But how come it’s rarely the team but mostly the coach who gets fired when several important matches are lost in a row? Probably because it’s easier to put the blame on a third person – a facilitator –than to change the team itself. Especially when the team has players that we consider to be good and worthy of a second, third or fourth chance.

There’s actually a good reason for changing the coach: a new coach is “fresh” and not biased by past investments and habits that led the team to underperform. This is why governing boards of badly performing companies tend to privilege the replacement of their CEOs rather than take the risk (and the pain) of reforming the companies themselves. Daniel Kahneman explains this decision in his book Thinking, Fast and Slow. ‘The members of the board, he writes, do not necessarily believe that the new CEO is more competent than the one she replaces.’ But they do know that she does not carry the same commitment to past investments and is therefore better able to ignore the sunk costs of these past investments in evaluating current opportunities.
This analysis is just one of the many keys to success and, more importantly, to happiness. If you are looking for this happiness, try to be your own “new CEO” who is unhindered by the ‘sunk-cost fallacy’. You might experience two types of pleasures: first the pleasure (and excitement!) of detecting what keeps you from seeing the new, and then the pleasure of actually seeing and doing the new. It often doesn’t have to take much to avoid the sunk-cost fallacy which keeps people for too long in poor jobs, unhappy marriages, unpromising research projects and unfulfilling lives they don’t have to live.

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