Want to be Rich and Happy? Get Rid of The Sunk Cost Bias | Summary and Q&A

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January 18, 2018
by
Nick True - MappedOutMoney
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Want to be Rich and Happy? Get Rid of The Sunk Cost Bias

TL;DR

The sunk cost fallacy, a cognitive bias, keeps people from making rational decisions by causing them to continue investing in something based on past investments. To be wealthy and happy, it is crucial to break free from this bias.

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Key Insights

  • 🥺 The sunk cost fallacy affects both financial and career decisions, leading people to continue investing in something they regret.
  • 🍂 It is essential to assess choices based on their current value, rather than prior investments, in order to avoid falling into the trap of the sunk cost fallacy.
  • 👻 Overcoming the sunk cost fallacy allows individuals to pursue their passions and make more rational financial decisions.
  • 🥺 Letting go of past investments, even if it means taking a small loss, can ultimately lead to greater wealth and happiness.
  • 😨 Buying cars based on monthly payments and staying in unsatisfying jobs are common examples of the sunk cost fallacy.
  • 🇨🇷 The sunk cost fallacy can negatively impact personal relationships and overall well-being.
  • ⚾ Avoiding the sunk cost fallacy requires a shift in mindset and a willingness to make decisions based on current circumstances.

Transcript

what's up guys NIC true here and today I'm gonna share with you one specific way of thinking that is actually keeping you poor and unhappy see humans have all these weird err thoughts inside our heads that can actually affect our decisions and some of these thoughts are so widespread and so many different people have them that scientists have actua... Read More

Questions & Answers

Q: What is the sunk cost fallacy?

The sunk cost fallacy refers to the tendency to continue investing time or money into something simply because you have already invested in it, even if it is not the best decision going forward.

Q: How does the sunk cost fallacy affect financial decisions?

The sunk cost fallacy leads people to make poor financial choices, such as continuing to pay for a car they don't like or keeping a house they regret buying. It prevents them from cutting their losses and making more rational choices.

Q: Can the sunk cost fallacy affect career decisions?

Yes, the sunk cost fallacy can trap individuals in careers they dislike. People may feel reluctant to change careers or pursue their passions because they have already invested time and effort into their current path.

Q: How can individuals overcome the sunk cost fallacy?

Overcoming the sunk cost fallacy requires evaluating decisions based on their present value. One should consider if they would make the same decision today, regardless of past investments, and be willing to let go of the sunk costs if necessary.

Summary & Key Takeaways

  • The sunk cost effect occurs when people continue investing in something they wouldn't choose if given the option, simply because they have already invested time or money into it.

  • Examples include continuing to make payments on a car you regret buying or staying in a job you dislike.

  • Overcoming the sunk cost fallacy requires evaluating choices based on their current value, rather than past investments.

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