Morgan Housel wrote a good set of notes from a talk Daniel Kahneman did in early 2017 (HERE).
I thought that Kahneman’s words on persistence are very instructive for investors, business leaders and entrepreneurs. Instead of focusing on the positive aspects of persistence, he spoke about its negative aspects and associated sunk costs.
You want to treat sunk costs and persistence like Kahneman. Such a mentality, I’ll mention below, has helped me.
First, Kahneman’s words:
“When I work I have no sunk costs. I like changing my mind. Some people really don’t like it but for me changing my mind is a thrill. It’s an indication that I’m learning something. So I have no sunk costs in the sense that I can walk away from an idea that I’ve worked on for a year if I can see a better idea. It’s a good attitude for a researcher. The main track that young researchers fall into is sunk costs. They get to work on a project that doesn’t work and that is not promising but they keep at it. I think too much persistence can be bad for you in the intellectual world.”
If you look through the lens of opportunity costs, each project, or investment, you or your organization can be involved in has a different value. Yet, you don’t know all your options in the beginning and their true value. It’s fine to experiment time and money if something interests you, but you have to be willing to change your mind when something better comes around. If you don’t change, you’re giving up on better opportunities that will more than likely lead to regret in the future.
Sometimes it is best to relate with a personal story. I’ve been utilizing this strategy my whole life to decent results.
I wanted to be a famous guitarist, a rock star. From my 10th birthday on-wards I spent 1,000s of hours practicing. It looked promising, and I loved doing it.
I took it to the next step and attended Berklee College of Music. Once there I quickly felt that things weren’t what I envisioned. There were others who were better prepared, more disciplined and had better connections. It didn’t help the gap between the top musical performers and bottom was getting bigger. Not to mention that the rock or jazz that I loved playing were decades out of style.
Even though I invested all of this time into the guitar, my chances were slim to nil on making a decent living playing music. I could have persisted, but business and investing came into my life.
I gave up aspiring to be a star guitarist and haven’t regretted it one iota.
The opportunity was much better in investing and business, but I had to fail at many other things first. I spent time studying to become a personal trainer. I got certifications, worked at a gym and put in many hours. It wasn’t for me.
I tried living in South Korea for a few years learning the language, working there, even marrying a woman there for a very short time, but gave up all that, too. That experience taught me exactly what I wanted from life in terms of a family and have exactly that right now.
Life is too short to persist in something with a lower marginal value, no matter how much time or money you’ve put into it. Too many people die with their “music” still unplayed. Don’t get in the habit of feeling like you have something to lose when something better comes around. Live without sunk costs.
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