Sometimes Quitting Is the Best Choice
In 1956, the British Supersonic Transport Aircraft Committee met in England to discuss the building of the most ambitious and epic aircraft ever to be produced – The Concorde. The Concorde was a turbojet-powered supersonic passenger airliner. Its tested maximum speed was an astonishing 1,354 MPH, which is twice the speed of sound. It held 92-128 passengers, which made the potential price tag on a Concorde flight across the Atlantic quite expensive. The Concorde was gaining serious momentum and in 1962 France joined in on the aviation fun.
However, there was a serious problem.
The Concorde project wasn’t working and it was costing a LOT of money. So much in fact, that any programs encountering similar problems were immediately cancelled, but somehow the more money spent, the more planners wanted to continue on with the project. The project budget became hyper-inflated as they stubbornly tried to get the project airborne. In the end the Concorde became a supersonic bust, later becoming synonymous with the idea of throwing “good money after bad”.
In 1976, economics Professor David Henderson estimated that the entire project including interest and budget adjustments cost roughly 6.82 billion dollars (that’s in 1975 dollars). To give you a scale of that amount of money – think of this – the Apollo mission cost 20 billion.
The myopic focus on finishing the project, one that they had already invested countless hours and dollars into, made Concorde project managers essentially blind to the futility of their endeavor. Although the project was considered a “commercial disaster” political and legal reasons kept involved parties in the project and paying.
The Concorde fiasco later became known as the “Concorde Fallacy”, which follows it’s more popular handle – The Sunk Cost Fallacy. When we become overly committed to an idea or plan that is clearly failing or not meeting our expectations we are committing the Sunk Cost Fallacy.
Let’s look at a few more examples to exemplify the Sunk Cost Fallacy:
Consider that giant plate of food most Americans regularly find themselves in front of, while you may not want to finish eating it, you often do. Or, the movie/TV show that you recognize as utter crap, yet still feel compelled to finish. More nefarious situations might include: staying with someone who you know is a terrible match for yourself or finishing a PhD program because you only have two years left despite the fact that you have long ago lost interest in your studies.
If you examine your life honestly, you’ll find multiple examples of the sunk cost fallacy. Think about your friends, former lovers and job. Have these things truly met your expectations or are you just holding on to them with the hope of a future miraculous transformation?
Humans are loss averse, meaning we don’t like losing. We especially don’t like losing what we have. Evolution has not encouraged an overly exploratory orientation; instead safety is best ensured by sticking to what “works”.
When we look to make future decisions focusing on what “works” may take us far away from a good logical decision. In traditional microeconomic theory, the branch of economics dealing with limited-resource-based decision making, only future prospective costs should be relevant to an investment decision. A good economic decision shouldn’t be influenced by sunk costs, but rather evaluated according to its own incentives.
Seems pretty logical, right?
The problem is people don’t think like that. Loss aversion makes us overly focused on losing what we have than on gaining something better. Studies by the godfathers of modern behavioral research, Amos Tversky and Daniel Kahneman show that losses are twice as powerful, psychologically, as gains.
Even when we are going to lose something we don’t really want or care about, the risk of that loss somehow elevates its importance.
Think about how you would feel in these two situations:
- Losing $100.
- Winning $150.
If you are like me, losing that $100 feels much worse. You already had the money, but it’s gone now. This is an example of loss aversion. While we might feel great winning $150, the deep visceral dissatisfaction of losing the hundred sits in a much deeper place.
Decisions are often “framed” in contexts that involve sunk costs. When trying to make a future decision pay attention to statements like:
- “But I’ve already spent so long…..”
- “I can’t stop now. I’ve already……”
These are great signs to stop and reconsider if the action we are engaging in truly serves our purposes. When we invest an incredible amount of time, money and effort – who is ready to quit? There is a strong social narrative of “not quitting”; which inspires almost every motivational poster. You won’t see a “It’s time to quit!” poster on an elementary classroom wall, but you’ll definitely find 2-3 motivation posters encouraging just the opposite – stay committed and win.
At What Point Does Persistence Hurt You – Not Benefit You?
Commitment and stubborn perseverance to achieve your goals form the cornerstone of any successful financial or personal-development strategy. What cannot be accomplished by precision and finesse can often be achieved through brute-force and sheer investment of time.
But, at what price?
The limited resources invested into an idea or pursuit are precious. While money may be abundant, our primordial energy in the form of time cannot be replaced.
I think most of us are intelligent enough to know when we are stupidly clinging to the hope of success. When reality is at odds with our hopes, it’s time to reconsider what we are doing.
How often are you exposed to the idea of “quitting”, while you may do it naturally when starting a new diet, habit or project – quitting rarely enters into public discourse. Some of the most amazing business and personal achievements I have made in my own life have come directly as a result of persistence and commitment regardless of the roadblocks and setbacks I encountered. On the other hand, some of the most disastrous colossal wastes of time in my own life have also come directly as a result of misplaced persistence and commitment.
There is a delicate line between the two, often the decision to continue regardless of previous losses exists in a gray zone where outcomes are unknown. While continuing on might bring you eventual prosperity, it may also cause your slow untimely mental and physical ruin.
A Simple Formula for Knowing When to Quit
I have been paralyzed by this dilemma countless times. I didn’t know whether I should end a relationship or just continue on hoping for some better outcome. Sometimes it worked out, and other times it didn’t. Existing in this gray zone of not knowing what the outcome will be is an effective way to stagnate all your life. Avoiding action and relying on wishful thinking or some assumed future change is something I just can’t accept.
However, there is another alternative; a technique that keeps your logical faculties in control and allows you to make decisions with a little bit more “microeconomic sense”.
In a paper entitled, “Mnemonomics: The Sunk Cost Fallacy as Memory Kludge”, authors Sandeep Baliga and Jeffrey Ely argued that
human beings – even rational ones – have a limited capacity to remember the original reasoning behind their decisions.
The decision we make to engage in an activity at its inception is rarely remembered with the same clarity several years down the road. This is in part due to how memory works. An overwhelming amount of neuroscience research has shown that the long-known plasticity of the brain also lends itself to flexible, detail-modifying, narrative-based memory construction which is both malleable and, unfortunately, unreliable.
If information can be lost so easily and the original decision quickly forgotten, we need a mental placeholder to remind us why we decided upon something. Like a shopping list that reminds you of exactly what you need, the same can be created for decisions.
This is an area I incorporate heavily into goal-setting. Clearly stating the “WHY” behind each decision can help you stay on track and focused on your original goal. This laser-sharp focus on the reasoning behind each goal, serves to avoid the momentum of emotional-based loss aversion which often leads you stumbling down the same path you should be avoiding.
I achieve this by writing it down. Your mind may forget, but the written word remains true to its original intention. Reflecting on why you made a decision can keep you free from the sunk-cost burden of previous decisions.
In the end the decision to give up is something that only you can make. Sometimes giving up and starting fresh is the best idea and knowing when to call it quits is the best recipe for saving money, your sanity and most importantly – your precious time.