Thursday, July 25, 2013

Sunk Costs : Live With It Or Leave Without It

My last blog post was in June 2012. I would be lying if I said ' I don't have time to write'. But yes , my reading has gone down terribly.I realized I'm not realizing little things anymore ,I cant believe some of the stuff written on my blog were written by me. I last read Delivering Happiness by Tony Hseih in Jan 2013 .A cracker of a book for those who are self employed,owning a company or for the people employed in operations and logistics.Shall write about the book in one of my upcoming posts.
I have resolved to write more often , so in case I forget my resolution and abscond. Kindly Pull me back here.

We've got loads of economic theories around us. Many of them are applicable to common relationships and life patterns as well. One such amazing theory I came across during my research of why people continue to invest in a dying project. . IE. Breakups and Breakdowns . The best part was most of them knew it was coming and in retrospect they feel like an absolute fool for having invested so much time/money/energy (Synonyms for each other). Its called the Sunk Cost Fallacy .

Now when I mean project, it could be your Girlfriend/Boyfriend, Wife, A Music /Dance class you decided to take , A restaurant you went to , A new movie you are watching.

Below are a few examples I have observed that fit the theory well:
1.Continuing a job so as to make it look good on your resume or because you got it through campus interview and not many get it... Sticking around because the company has got a good brand name in the market and you have dumb profiles and you're on Facebook playing Farmville or watching mutual friends' albums, Whats apping  and playing simulation games during office hours and you pick up nice decent salaries for the next 3 years.. accepting that single digit increment because you know deep inside you aren't worth a penny more for the amount of work you do! And when you are about to leave the company.. the magic spell is cast by the boss.. he shows you a Pinky Picture  (Rosy is still okay,Pinky is shitty sweet talk , and besides pinky rhymes with picture) of how he had plans for making you the Deputy General Manager or a visit to an exhibition in Germany sponsored by the company , or the much awaited 30% hike and promotion if you worked doubly hard. In order to avail all of the above offers... you decide to stick around besides you've already given 3 years of your life to this company ,lets give another year and see if all that comes true... and boom there you fall a victim to this fallacy again.

2.Sticking around with a partner who sucks ( at the wrong things apparently ). I've got a couple of friends who have girlfriends and boyfriends that even they never believe they willingly proposed to them.Some Relationships Fail, they do get toxic at times. and I strongly suggest you to sit down and have a good conversation without blame games about whats going on with your partner. If you think you or she does not have the brains to solve stuff...Log out asap! 

"Nahi yaar 8 saal se hum saath hai... Ab kaise..itna saal Baad kaise jaane du.."
"Thik hai , Jhel phir" 

You are wasting your time... which you could use to find another partner who could be more compatible..with your OS .

3.Many of my Pharmaceutical Clients continue using a irrelevant equipment for their processes only because they paid a couple of lakhs for it... and although buying another one would save a lot of costs and improve efficiency .but they are so emotionally attached to their older equipment  that they cant let her go and they will want to justify their purchase till the machine blasts or crashes down in the middle of production! They decide to keep and getting bad production instead. ( Silly egos I tell you)

Here's an excerpt from the conversation: 
Ram : Sir my equipment costs 20 L only and you would be saving an annual sum of 6 Lakhs on your utilities  that are wasted on your current equipment, power costs , labor, production times etc..
Client: But then what do I do with what I have now. I already bought this one for 16 L (' saste wala toothpaste dena' )
Ram: Sorry we don't have discounts on buy back of your old equipment.
Client: In that case. I can't afford 20 L as of now.
Ram: Nice meeting you sir .

4.Buying a Lousy Dress/Shirt (which at that time seemed beautiful) and wearing it only because you paid for it and cant imaging not wearing a dress that costed 2000 rupees.Many a times you want to squeeze back into that size only to be able to wear that so that the cost is justified, and then awaiting an appreciation for that dress ,only to prove to yourself it was all worth it. Damn! you could have bought another dress with the time,money and energy invested and looked fabulous immediately.

5.Eating because you shouldn't waste food or drinking because you shouldn't waste alcohol ( we'll I've been brought up to believe that .. and yea I still believe in the latter part) . Stuffing till you cant sleep ,causing discomfort , acidity due to extra eating and drinking are costlier than wasting that much. (Bhagwaan ji... and Mallya ji Maafi Chahta hoon). Money is gone the moment you pay for it. Point is do you wanna stick around trying to recover that .. hoping that the pizza would be nutritious or have more cheese in the last piece or the last peg left is gonna take you to Jupiter..Tabhi to Vasool hoga na. 

Wasting food is bad of course but you are WAISTing it. ie. affecting you waist.Trust me you are doing more harm than good. 

6.Continuing a course because you paid for it and for the certificate, although you know it is going to add no value..and hoping that some day it will really help ( Mumbai university Engineers please don't read this, Please finish your course) . . Stop wasting time and money and of course pocket money.. Quit your dance /Music classes if you aren't getting enough opportunities to perform . Quit that tuition if you feel the only reason you attend is to watch the girl from another school and your maths just wont improve. 

7.Watching a Movie which is full of crap till the interval and you stick around because you paid a cool 300 bucks for the Red Box and more over buy popcorn for the latter half of the movie.. AC ka kharcha toh vasoolneka bhai.. ( This is applicable only if your girlfriend isn't seated next to you, If she is , its all worth it).

8.Holding on to a fallen stock hoping some day it would revive and make you Richard Branson.
Sell before you lose more money on it, and observe when and what to buy next. ( Brokers Please explain Stop Loss to all your clients when giving target prices)

9.Purposefully taking a Flight because you booked your flight tickets 3 months in advance and you would look like a fool if you didn't take that flight after having got it for so cheap..Point is " do you want to go now?" 

And there are so many more... but I'll leave them for my future posts. 

I'll wind this up with a Zen story of a Monk and His Raft..

There was once a monk who built a raft which helped him cross a river , a turbulent one. The monk knew the raft had saved his life. He decided to carry the raft with him forever. However during the climb to the mountain top to his monastery he realized there are no more rivers and the raft is only a liability rather than an asset that hes carrying on his back.. in fact causing more damage. He bids good bye to the raft and continues his journey to the top.

What are you carrying that you already paid for ??
What boring movie are you continuing to watch ??
What person are you being with ? The one you like to be with? or the one you committed years ago?
What Automobile are you holding on to being unhappy about??
What Course you are attending if you aren't going to pursue a career in it??
What Investments in loss are you holding on to??
What workplace are you working for?? Is looking good on the Resume Important?

Getting answers in your head??

Analyze the Pros and Cons of any decision keeping the cost factor aside. By cost it would mean what you have invested so far. Never let sunk costs get in between your decision making. It would help you make better decisions in life.

Keep coming back to Ram's Realizations.


  1. Wow.. that was detailed..
    Good to see u back :)

  2. bt then..sumtimes u need to finish what u stated.Or leaving something at the hint of boredom or a plateu might just lead to chaos in our minds!
    newayz nicely put buddy! :)

  3. well said tejas ! that can be my next post.. Finishing what you start...! another paradigm

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