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Fail Fast, Sunk Cost: Two Sides of One Costly Coin
In a recent article, I discussed the problem with “Failing Fast” — essentially, relying on your gut to make decisions without data. A reader pointed out that avoiding Failing Fast could lead to another costly issue—namely, the Sunk Cost Fallacy (SCF), where companies double down on bad investments rather than cut their losses, potentially wasting millions.
Both Failing Fast and the Sunk Cost Fallacy are two sides of one costly coin. Failing Fast relies on your gut to make decisions in the absence of data, while the Sunk Cost Fallacy relies on your gut to make decisions despite abundant data. Both sides are still emotionally charged and “gut-driven,” and both sides lead to bad decisions.
Gut vs. Intuition
But if gut-driven decisions lead to bad outcomes, why do we rely on our gut so much? We should know better.
There’s a crucial distinction I need to make here. “Gut” is not intuition. Intuition comes from experience and expertise. Gut reactions, on the other hand, are driven by the primitive parts of our brain, or what my friend and behavioral neurology expert, Michael Liebowitz, calls the “critter brain”.
According to behavioral neuroscience, humans basically have two brains: the evolved rational brain, and the unevolved critter brain. The rational brain handles logic and reasoning, while the critter brain makes sure you don’t die.
Your Critter Brain: Friend and Enemy
So, imagine you’re about to talk to the executive team about a US$50,000 sales investment you made that has turned sour. It’s been 12 months with no results. The stakes are high. Success means more money, and a steak dinner at a really high-end steakhouse – the kind with bathroom attendants. Failure means you could lose your job.
Your rational brain knows you won’t die if things go south, but your critter brain can’t tell the difference between the stress of this sit… Read More
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