With approximately 1.8 million words, Mahabharata is one of the largest epic tales in Hindu mythology.
It is the gold mine of wisdom expertly woven through its multiple threads of exciting storylines.
In one of the famous instances, Yudhisthir was enticed into playing dyut, a kind of dice game where bets are placed. His opponent, Duryodhana, appointed his Uncle Shakuni, a master hustler of the game, to play for him.
As the game progressed, Yudhisthir lost all his wealth, including his brothers. Despite losing every game he played, Yudhisthir put his wife, Draupadi, at stake to play once more in the hope of gaining whatever he lost. Nothing changed; he lost again, now even losing his wife.
The aftermath of this incident made the ‘great war’ inevitable.
While this may be a mythological story, in real life, too, versions of such tendencies are acted out by all of us, if not regularly, then frequently. We, too, keep playing the losing game.
Behavioural economics identifies this propensity of humans to keep pouring resources, be it money, time or efforts, into any endeavour which has slim to no chances of success as ‘SUNK COST FALLACY’.
Examples are plenty; people continue their unfulfilling careers because they trained for it for years, or spent a fortune getting the relevant educational degrees.
However, in the investment sphere, this fallacy is endemic where people cling to their underperforming assets or continue investing more in the hope of saving it from being junk, but eventually, it becomes worthless.
What is the way out?
Think rationally and commit any further resources in any of your endeavours based only on present realities rather than on what you did in the past.
So if your decades old business is not sustainable, it is better to look for fresh opportunities. If you hate your present job where you have spent years, don’t hang on; look for newer pastures.
And if you hold junk or soon to be junk investments, don’t stick to it or worse, don’t put your good money after the bad one; just book your losses and put your bets on the right assets as per current prudent assessment.
Sunk cost fallacy follows us everywhere, from trivial things like eating our time in finishing a boring book or ‘series’ to essential aspects of life, like, holding us hostage to past decisions and clogging our way to future wellbeing.
By just being mindful and conscious of this fallacy, you can identify it. And by taking a stoic and logical approach to allocate your current resources, be it time, money or labour, you can avoid it.
Have you ever fallen prey to sunk cost fallacy? Share your experiences.
Vikas Sharma, CFP®, is a first-generation purpose-driven entrepreneur with over 19 years of experience in financial services, personal finance, and the advisory space. He is a Certified Financial Planner, an IIM Calcutta Executive Alumni, and holds an MBA in Finance and a Postgraduate qualification in Financial Planning.
Currently, Vikas is the Co-Founder & CEO of The Logical Advisor (TLA Academy Pvt. Ltd.) and Goalchi Capital Solutions LLP, where he integrates life, purpose, values, and money to create meaningful financial journeys.
He has worked with a leading Asset Management Company, mentored 1,500+ IFAs and Relationship Managers across India, and educated 10,000+ investors through Financial Wellness programs. His work has consistently focused on reshaping advisor and investor behaviour to enable sustainable success.
Vikas also coaches and mentors financial advisors nationwide, helping them build purposeful and successful careers.
