How to Know When to Quit vs Double Down (The Sunk Cost Trap)

Hey zxcv, it’s Mark.

Have you ever sat through a whole movie, even though you knew halfway through it was going to be terrible and a waste of time?

If so, you’ve experienced something called ‘Sunk Cost Fallacy’, one of the sneakiest psychological traps out there.

In simple terms, Sunk Cost Fallacy is when we keep pouring time, money, or effort into something just because we’ve already invested a lot.

So here’s three ways you can avoid this trap to save your time, money, and potential:

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1. Shift your focus away from the past and into the future

This is easier said than done.

I understand that it can be hard, especially when you’ve poured time, money, and energy into something.

Whenever you’re stuck with a tough decision, ask yourself: if I were starting from scratch today, would I still do this?

If your answer is no, then it’s probably time to move on.

In the wise words of Rafiki from The Lion King, “The past can hurt, but the way I see it, you can either run from it or learn from it.”

That’s exactly how you need to think.

Don’t let past decisions trap you. Learn from them, but make your next move based on future potential, not past costs.

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2. Learn to cut your losses without emotions stopping you

I know it feels personal when your hard-earned cash is at stake, but the market has no time for feelings, and hanging on out of pride only makes the pain worse.

If you’re doing something that still aligns with your long-term goals and the fundamentals are still going strong, then stick with it.

But you should consider cutting your losses if that thing is underperforming and you’re only keeping it because you don’t want to admit failure.

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3. Set clear criteria for quitting

This helps you avoid emotional decision-making.

In business, for example, it could be deciding beforehand when to pivot or walk away.

In investing, it could mean using a stop-loss, like selling automatically if a stock drops 15%.

And in life, if something consistently drains your energy and adds no value, give yourself permission to quit that too.

The key here is to make these rules before emotions get involved.

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zxcv, when have you experienced Sunk Cost Fallacy? I’d love to know, so hit reply to this email.

All the best,

Mark Tilbury