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Sunk Cost Trap

December 13, 2017

Video GamerSocial Media:

I was listening to a podcast on technology and the speaker was complaining about how difficult it was for him to “quit Facebook.” He felt as though he has spent so much of his time building up a great Facebook network of friends and family, that it would be “wrong” to quit. He was in a trap of his own making. However, this gentleman was able to break out of his trap and he felt much better for it.

He then went on to relate a story of his gamer friend. Seems his friend had grown up spending about three hours a day playing World of Warcraft. He is married now, though, and has young children. So he was determined to stop playing the game. However, after a couple of weeks, he went back to playing, and was just as devoted to it. He stated that he had invested so much time and energy in creating his character and group of on-line friends to compete with that he couldn’t leave. Again, a trap of his own making.

Both of these gentlemen were trying to regain their time for more productive uses. Both felt trapped by the sunk costs. One was able to overcome the sunk cost roadblock and the other wasn’t.


How many times have business leaders made the mistake of not disrupting their own markets because of the sunk cost trap? For me, Kodak comes to mind immediately. They were among the first to design a digital camera and yet were unwilling to market that camera because it would “cannibalize” their traditional film business. Because Kodak was a customer at that time, I knew about the digital camera and purchased one. It was an excellent 4 Megapixel camera with a 10x optical zoom lens. My grandson is using it now. But Kodak is a mere shadow of its former self. What a shame.

Leaders Must Avoid the Trap:

It is incumbent upon leaders to guide the team out of the Sunk Cost Trap. Be the disruptor of your own business — don’t let others do the disrupting for you. It is far better to be in control of your own destiny. If your team can foresee what could put them out of business and develop it themselves, then they have a better chance of creating a controlled market transition. The worst possible decision would be one such as Kodak made. See the technology disruption, develop it and then purposely decide not to deploy it.

Individuals and Groups Too!

Hello! What’s that you say? Artificial Intelligence, Algorithms and Robotics are going to obsolete many tasks performed by humans? Education is the only way for humans to partner with automation? Naw! Your job may be obsoleted, but not mine. I’ve put in a lot of time and energy to get where I am today. I can’t re-invent myself and my career at this point. I’m vested.

And society is also slow to respond to disruption. Young people create new moral standards. Immigrants bring in new traditions and views. Economic models are disrupted by advances in science and technology. Yet, society often doesn’t even try to keep up with the external and internal forces disrupting the status quo. Instead, the tribe circles the wagons and tries to fend of the changes attacking their comfortable way of life.

Resistance Is FutileConclusion:

It seems that it is human nature for many of us to try to fight change. Some of that is just being averse to change. Part of it is being lazy and not wanting to work at making change happen. And a large part is believing our own story about the value of sunk cost. Resistance is futile!

Neither the universe nor the endless march of technology cares about the sunk costs we perceive we have around a process or product. Instead, nature may be using the trap of sunk cost to weed out that undesirable trait in humans and organizations. In other words, change or die.

It is becoming increasingly clear to me that we must expect, embrace and create change in our lives if we are to be productive human beings. That takes leadership and discipline. Are you up for it?

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