Epistemology, The Sunk Cost Fallacy Fallacy, & More

Sharpening your thinking today:

• Makes-You-Think Tweet: Epistemology is hard

• Mind-Expanding Concept: The sunk cost fallacy fallacy

• Cool Quote or Question: Motivation doesn’t last

• High-Signal Content: The power of defaults

Makes-You-Think Tweet

We jump to conclusions too fast on too many subjects. We rely on logic even when there’s hard data available. We extrapolate from unrepresentative obviously small samples. To some extent, we must do it to operate in the day-to-day. But for highly important matters, we should be more critical and invest the time to grok the nuances. Epistemology is hard but it’s essential.

Mind-Expanding Concept

The Sunk Cost Fallacy Fallacy

Tom: I want to go back to finance.

Me: I thought you didn't like finance and went to grad school to go into tech. No?

Tom: Yeah, yeah, but look at my story (read resume). I only did finance. There's nothing that says tech. And I can leverage my experience to get a senior role in finance.

The sunk cost fallacy

You start a Netflix series and don't quite like it. But since you've watched the first two episodes you end up watching the other eight. That's the sunk cost fallacy at play.

A sunk cost is a cost that was incurred in the past and cannot be recovered. Rationally, if it cannot be recovered, it shouldn't be taken into account for decisions about the future. But we do it all the time.

It's a powerful bias. Even considering it when making a decision, it just doesn't feel right. Deep down. In our guts. A common explanation is that once we made a decision, we want to be consistent with our past selves and stick to it. Otherwise, we feel guilty. But is that all? Is it just a case of our emotions messing with our rationality?

The sunk cost fallacy fallacy

By listening to Tom I realized that ignoring sunk costs might also change the story we're telling others about ourselves. In that sense, it doesn't seem irrational. We're social creatures, who play an inescapable signaling game, and changing our narrative may impact our standing in a group.

We're constantly gauging the expectations of others. And we assume that if we deviate from the "expected narrative", we'll be less attractive to the group. I'd argue we shouldn't assume. We're terrible guessers at what others think or feel.

And If changing the course is the right thing to do at the moment, for you, there's likely a way to craft a story that will be convincing and appealing.

Me: Being genuinely interested in a space is a good enough reason to explore getting a job in it. Don't dismiss it from the get-go. And if you need to take a step back to take two forward, who cares?

Tom: Yeah..yeah..you might be right. Another beer?

Cool Quote or Question

High-Signal Content

“Beliefs are the world’s most powerful network effects. They don’t just explain the success of software products. The price of Bitcoin, democracies and dictatorships, capitalism, and the power of the church are all based on intersubjective realities. No moat is more durable than a shared belief.”

See you next week,

Filipe