Sunk costs become emotional property
The more time, money or hope has been invested, the harder it becomes to leave. Economically, past costs cannot be recovered. Psychologically, they become an argument for investing even more.
The Model changes the question from how much has already been invested to what action makes sense with today's information.
Expectations change perception
Investors, leaders and partners search for evidence that protects the outcome they want. Contradictions are explained away or postponed.
The Model treats expectation as a separate variable and tests observations against alternative explanations.
No can be economically productive
A boundary does not only end opportunities. It protects resources and influences the terms of future interactions.
The immediate loss of saying no may be smaller than the long-term cost of accepting a bad system.
Core principles
- Past costs must not automatically dictate future investment.
- Expectations are hypotheses, not evidence.
- Boundaries have economic value.
- A loss can be the least expensive available decision.
Questions and answers
Which behavioral economics themes appear in the book?
Loss aversion, sunk costs, expectation effects, status, exchange, trust, priorities and self-deception.
Is the analysis limited to companies?
No. The same mechanisms operate in investing, relationships, careers, consumption and personal responsibility.