Have you ever found yourself pushing forward with a project, relationship, or strategy simply because you’ve invested so much time, money, or energy?
This urge to stick with something long past its usefulness has a name: the “sunk cost fallacy.” And it’s a challenge for leaders everywhere (and devastating to poker players).
When we let past investments drive our decisions, we can fall into a cycle of overcommitment, putting valuable resources into efforts that may no longer serve our mission or goals. In this post, we’ll explore how sunk costs affect leaders and discover practical ways to break free and make better decisions for the future.
Pot Committed
In poker, they call this being “pot committed.” I’m not a great poker player, but I understand this fallacy. When you begin a hand of poker, you can place a bet, raise the bets, or walk away from the hand. For many players, walking away becomes increasingly difficult in direct correlation to the money you’ve bet in the hand. Intellectually, every player knows that throwing more money into a hand that isn’t going your way is not smart, but the desire to recapture what’s been lost is a powerful motivator. It’s also a fallacy.
This happens to me at restaurants. I’ll order a meal and feel the need to finish everything served, whether I’m full halfway through the plate or not. The meal costs the same whether I eat everything or stop before I feel sick, but the fallacy drives me to escalate my commitment.
How the Sunk Cost Fallacy Impacts Leaders
Sunk costs often lead leaders to hold on to ineffective projects, people, or partnerships. Let’s consider the drawbacks of escalating poor commitments before considering how to break free from the escalation.
Here are seven ways the sunk cost fallacy can harm leadership:
1. Prolonging Unsuccessful Projects
Leaders often pour resources into projects that no longer provide returns, fearing that letting go would waste previous investments. But prolonging underperforming projects drains resources that could be better used elsewhere.
2. Resisting Strategic Changes
Sometimes, a strategy no longer aligns with the organization’s goals, yet leaders hesitate to shift direction. If you’ve invested heavily in a plan, it can feel impossible to pivot, even when it’s best for the organization.
3. Holding Onto Ineffective Staff or Teams
Investing in team members is critical, but it’s hard to release someone who isn’t meeting performance standards when time and money have gone into their training. This hesitation can hinder growth and morale within your organization.
4. Overcommitting to Certain Vendors or Partners
Loyalty to long-standing vendors can keep leaders tied to partnerships that no longer serve them well. By maintaining outdated contracts, leaders may miss out on better, cost-effective options.
5. Investing in Buildings or Facilities
Buildings often carry significant emotional and financial investment. Leaders may continue pouring money into underutilized spaces despite the strategic benefit of reallocating resources elsewhere.
6. Clinging to Outdated Programs and Products
Legacy programs can become untouchable simply because of the work and years put into them. Yet, hanging on to outdated programs or products may keep an organization from launching initiatives that better support its mission and meet customer demands.
7. Ignoring Opportunity Costs
Each dollar, hour, and ounce of energy spent on something ineffective is a missed chance to invest in something better. The sunk cost fallacy can cause leaders to overlook what else they could achieve with their resources.
How to Break Free from the Sunk Cost Fallacy
This fallacy is real and affects every leader at some point. If you sense any escalation in your heart for something others want to jettison, try this:
1. Shift to a Forward-Focused Mindset
When evaluating an investment, think, “What impact will this have moving forward?” instead of dwelling on the past. This reframe can help leaders evaluate projects based on future alignment with organizational goals.
2. Set Clear Decision Criteria
Having predefined criteria for success helps you recognize when it’s time to cut losses. Measure each project against these standards, not your emotions, and adjust accordingly.
3. Regularly Reassess Commitments
Schedule routine check-ins to determine if investments still align with your organization’s goals. Ask yourself, “If I hadn’t invested yet, would I choose this again?”
4. Foster a Culture of Adaptability
Encourage a team mindset that views pivoting as positive. When adaptability becomes a core value, it reduces the fear of “wasted” effort.
5. Recognize Emotional Attachments
Emotions often cloud our ability to let go. Reflect on whether pride or personal investment is affecting your decisions, and seek input from advisors who can offer an objective perspective.
6. Consider Opportunity Costs
View resources in terms of what they could achieve elsewhere. This shift in perspective can make it easier to let go of low-return projects.
7. Seek External Perspectives
Sometimes we need outside advice to gain clarity. Consult trusted mentors or board members who are less emotionally involved and can provide objective feedback.
Conclusion
As leaders, we’re entrusted to make decisions that shape our organizations and the lives of those we serve. The sunk cost fallacy can trap us in a cycle of overcommitment, where we keep pouring resources into something that’s no longer working. True leadership, however, requires the courage to reevaluate, pivot, and sometimes let go. By embracing a future-focused mindset and releasing what no longer serves our mission, we free up resources to invest in what matters most.
Call to Action:
Make sure your leadership decisions are future-focused! Take a moment to evaluate your current commitments and consider whether they align with your organization’s goals.
Quotes for Inspiration:
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- “True leadership isn’t holding on; it’s knowing when to let go.”
- “Don’t let past investments cloud your future vision.”
Resources for Further Learning:
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- Harvard Business Review: The Sunk Cost Fallacy
- The Paradox of Choice by Barry Schwartz
- Leadership and Decision-Making by Victor H. Vroom
One More Thing…
If you found this helpful, please pass it along to other leaders (and encourage them to subscribe!).
If you’re ready to accelerate your leadership, I’d be honored to help. Visit gavinadams.com to explore my systemic approach to leadership development and schedule a 30-minute conversation.
If you’re a church leader, visit the Church Accelerator Community. for ministry-focused leadership resources and content.
Leading With You,
Gavin Adams
