The Concorde Fallacy in Business and Life

In graduate school I knew a lot of miserable people. The academic grind had beaten them down, robbed them of the passion they once felt for their areas of expertise. Not me! I had pushed my chips into the center, giving myself over to my work (math modeling of animal learning and behavior–the specifics are irrelevant to my current topic but if you’re curious, here’s an example). I spent long hours in the lab writing and crunching numbers, and then went home to read journal articles. Everything was swell. Then, suddenly, without any particular precipitating event, I began to feel the way many of my colleagues did—tired and depressed, dreading each day.

As I joined the ranks of the miserable, I grappled with the fact that I had moved clear across the country and spent 4 years of my life, hours upon hours, pursuing this topic. I was good at it. How could I now hate it? Clearly, I had too much personally invested to just quit! Surely things would get better when I finished the PhD, or got that first Post Doc position, or the first real academic job, or finally earned tenure some 6 years after that. This pattern of thinking is extremely dangerous and irrational, yet all too common in life and in business. And it took me months to get a grip on it before I packed up and left.

Behavioral economists call this tendency the Sunk Cost or “Concorde” Fallacy (Concorde after the exorbitantly expensive sonic Jet project undertaken by the French and English governments). When making a decision we ought to be concerned with how best to allocate our current and future resources—be they money, time, or effort. However, as is often the case in Economics, oughts and is’s are not the same. Instead of behaving optimally, we tend to focus on decisions we’ve already made, money already spent, time already elapsed. And we make poor decisions.

This concept itself is far from a new one, but I hope my story will resonate for some of you. When you know in your gut that your current course is doomed, gather the courage to combat this fallacy. In my case it was about changing careers, and as our own Gary V writes in Crush It!, there are options aplenty for anyone who can identify their passion. But I think there is also a broader message for entrepreneurs and businesses. If your website doesn’t convert even though you paid some hotshot a lot of money to make it look snazzy, it’s time to fix it. If you are marketing a product that doesn’t make sense for consumers, move on. If your business model is broken, you know deep down that the little tweaks are not the answer. Re-think it or start anew.

What are you invested in that you ought to abandon?