WHEN TO LET GO

I’m sure you know somebody who started a business. They were excited, full of hope. It was their chance to change their life, be free, and finally earn enough money for all the things they had always dreamed about.

Time passes. They gain some clients, lose some, gain some again. The business doesn’t really take off, and the entrepreneur ends up working seventy hours a week, just to make the same money they made as an employee working forty. Three, four, five years have passed. From the outside, it’s clear that they need to stop, but they cling to their business as if their life depends on it, when in reality, the business is destroying their life.

In the stock market, you can see the same behavior. Someone invests in a company, and immediately the price goes down. "Ok. It can happen. It will go up," they think. The next day, it goes down again. The investor doesn’t sell. The next day, the same. No selling. Just waiting. Their emotional state is all gloom and doom, but they keep holding on, even until the value is zero.

Think about relationships. People stay in relationships that drain them emotionally, even when the other person has repeated the same hurtful behavior a thousand times.

Think about jobs. It’s the same thing. Why?

We keep investing energy, money, and time in things that are draining our resources because of a psychological effect called the Sunk Cost Fallacy.

It is an irrational bias that has different causes:

1. It’s hard to admit that we are wrong. That’s why we wait, hoping for the situation to reverse.
2. As time passes and the losses grow bigger, we seem dumber. The only way to "save face" is to keep going.
3. Cutting our losses is painful because that is the moment we have to recognize and accept the past loss. We react much more emotionally to losses than to gains.
4. Commitment bias: We commit to things we believe are good for us — a house, a job, a relationship, a business. Once committed, it’s difficult to backtrack, even if it turns out to be negative for us.
5. Confirmation bias: We tend to accept information that support our decisions and reject information that challenges them.

We are all subject to the sunk cost fallacy, but there is a way to start freeing ourselves from its grip:

Make an honest written assessment of your investment, your job, your company, and your relationships (whether it’s a partner, family member, or friend).

Ask yourself this question:

Are you losing your time, energy, happiness, health, or money?

Be honest with yourself: A good deed from an abusive partner doesn’t redeem them. The little rebounds in the market don’t mean your luck is changing. A new client doesn’t mean a lasting shift in your business trajectory.

If the balance is negative, look for signs that confirm it. Surely, people have warned you about your business, investment, job, or relationship. There are likely better investments, people in healthier relationships, and fairer job conditions around you once you care looking.

Finally, you have to make a decision and act on it. It will be painful, but that temporary pain will be your best investment:

Once you let go of the past, you’ll see the doors to the future wide open.

Carmen López. Business Psychology

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