Just Let It Go, Man.

It was day 6 of our trip.   We had walked an average of 5 miles per day in 95 degrees.  We had spent the last 5 hours shouldering our way through a sea of red and white, the traditional garb of San Fermin festival-goers.  And as we slumped onto the couch in our hotel, we were utterly exhausted. 

We just wanted to grab a quick bite and go to bed.  But we had prepaid $200 for a dinner reservation which we learned was back in town in the densest part of the party. 

We called to cancel.  "No refunds," they replied.

I’m cheap by nature, not just profession.  So the thought of spending $200 for nothing made me twitch violently.

As I spasmed on the couch, my wife in her infinite wisdom pointed out the flaw in my thinking. 

"The $200 is already spent.  That has nothing to do with our decision.  The only question is will you be happier going back into the madness or getting pizza downstairs and going to bed?"

My monkey brain flipped off, and I realized I was committing the sunk-cost fallacy.

That's when we continue down a path - regardless if it's still the best option - simply because we've already invested time or money in it.

Like finishing your meal until you get sick to "get your money's worth."  

Or like finishing a terrible book because you're halfway through it.

Or like holding on to a bad investment until "it gets back to even".

The right way forward may or may not be the path you’re already on.   And taking into consideration the time or money already spent is just your monkey brain at work. 

Forget what you've spent.   What will make you happiest from here?

 

Editor's note: a very astute Financial Zen member pointed out the bias I wrote about last week is actually the endowment bias, not the anchoring bias (future blog to follow).  Thanks, Tom!