The Simplest Way to Become a Great Decision-Maker
Make decisions based on future value not sunk-cost.
The above image isn’t the house we rented. However, the home was built in castle style. It even had a drawbridge.
The lake house:
Last month we rented a small house on Seneca Lake. We had so much fun we decided to do it again this month. We found a beautiful home on a private lake. The drive was short. The price was right. It would be fun. It wasn’t.
I like to get away with my High School sweetheart. She drove. I played love songs on my iphone. Eric Clapton’s “You Look Wonderful Tonight” was followed by Joe Cocker croaking “You are so Beautiful.”
Things turned dark when we arrived.
The owners typically live in a private wing of their six bedroom home. We found out after making the reservation that the owners would be away. Yippie! Frankly, we aren’t the Bed and Breakfast type. We emphasize “away” in “Getting away”.
The house has two living rooms and six bedrooms. The owners were practically invisible. But it felt like mom and dad were in the other room.
Ignore sunk-cost:
We left early the next morning before taking showers.
Ignore sunk costs when making decisions. Past losses have nothing to do with the future value of available options. We could stay and be miserable or have fun at home.
It didn’t matter how much we paid. It felt great to arrive back at our country home. We listened to Clapton and others on the return trip.
Make decisions based on future options, not past cost.
Dumb decisions:
- Hanging on to employees that don’t fit and aren’t making progress because you’ve invested in them.
- Staying in a miserable business relationship when better options are available.
Turn to the future. Past unrecoverable cost is irrelevant when making decisions.
We’re glad to be home, even though we could be miserable at the lake.
What’s your sunk-cost story?
How might leaders overcome the tendency to make decisions based on sunk-cost?
Afterword: We’re just getting into AirBnB and learning to interpret the language. Originally, I hadn’t realized the owners were living in a wing of the home. That was my fault. When I learned they would be away, it was great. I had assumed that in the beginning. We’ve chalked this up to a learning experience.
If you have a lake house you rent, drop me a note, but only if you’re going to be gone.
This conversation applies to life, too. Thanks, as always, for sharing the insight.
Thanks Jennifer. Absolutely. We stay in relationships longer than we should, not because we have evidence the future will be better but because we have already put so much into them.
I was at a two day conference at the Mohegan Sun resort in CT. One night, I decided to go to the comedy club. Cost $20 to get in. The comedians weren’t very funny. A couple were awful. But—— many people laughed at every joke/story. I concluded it was “sunk cost.” People had paid their 20 bucks so every punch line was going to be considered funny—even if wasn’t funny.
I decised to leave after the 4th comedian.
Thanks Paul. Exactly. Great illustration. One reason we might laugh at jokes that aren’t funny is confirmation bias. Better to forget the 20 bucks and go have fun somewhere else.
This is a very practical illustration of this concept, Dan. It made me think immediately of “prospect theory” which basically states that people will risk more to avoid a loss than they will to make a possible gain (I think I got that right). It’s a form of risk aversion. It’s not necessarily irrational, but it would certainly seem to create a lot of “what if” second-guessing and that’s no fun. Now, some might argue that there’s a benefit to going with the flow and creating a positive out of a negative, but I know that wasn’t the point of your tale. I like your decision!
Thanks Christopher. Yes, other people might have stayed and enjoyed it. I love working with the public. However, I value privacy when taking a break.
I think you’re right on “prospect theory.” It’s the other side of “sunk-cost fallacy.” Prospect considers the future. Sunk-cost considers the past.
Once again, I think you’re right that others might have stayed and enjoyed the experience. The story reflects our values. Frankly, it felt really great to be driving into our own driveway. 🙂
So the owners were there? In the post this is unclear. You learned they would be away, but then they were not?
Yes, Pete. They were there. They are awesome people. Part of the issue is my understanding of the descriptions in Airbnb. I’ve learned to ask for greater clarity.
In my experience in the workforce I’ve seen a lot of sunk-cost business relationship. Guys like each other or they did something for them along time ago and the repayment is you’ll always have our business no matter work. At my previous employer, Our staffing consulting companying was just plain subpar. We really were referred qualified candidates and had great turnover from the contract employees but not from our doing. Because the employees were often unreliable and would literally just stop showing up one day.
Instead of exploring other options, which new people at the site like myself suggested, the site remained using that staffing company as well as many other contractors that were subpar. in 2016 the doors of the site closed permanently. It was not completely because of the sunk-cost business relationship (oil price and lack of work was a big part) but I think that those sunk-cost definitely causes negative impact at a time when the site needed as much positive results as possible.
Thanks Donald. I have never thought of sunk-cost this way. Thanks for sharing your story.
My husband and I love the finger lakes area! So much that he proposed to me there and we were married on Seneca Lake! Just over a year ago we actually bought our own house on a smaller lake just 15 minutes west of Seneca called Waneta, definitely not a sunk cost!! While we don’t rent it I would make an exception for the Leadership Freak.
That’s awesome, Dorty. It’s a beautiful area. Love hearing how you were engaged and married up there.
We’ve tossed around the idea of a house on a lake. Right now, we rent one once in a while to get a feel. Thanks for the offer. I’ll drop a note.
At one point in your story you say you found out the owners would be away. But, then it sounds like they were not away. The owners were present, correct???
Correct. They returned from a trip.