The Bitcoin Espresso☕#16 — Final Edition & The Sunk Cost Fallacy

Recently I got struck down by COVID, a few days after Vladimir Putin ordered an invasion of Ukraine. These events caused me to reflect even more than I usually do, and I concluded that this newsletter is not something I want to uphold next to my laborious day job in these trying times.

With The Bitcoin Espresso, I was able to venture ever deeper into Bitcoin, and it brought me tremendous joy to get the feedback that I helped you understand the often complex world of Bitcoin a little bit better. It’s been a fantastic journey, and I thank you for having been a part of it. 💖

I’ll be holding on to hello+goodbye@thebitcoinespresso.com for a bit longer if you want to get in touch. To make farewell a bit easier, I’ll leave you with a focus topic: The Sunk Cost Fallacy.

🎯Focus: The Sunk Cost Fallacy

Sunk costs are costs that have been incurred but can’t be recovered. It’s an investment, be it time, money, or effort, that you won’t get back. The sunk cost fallacy describes our cognitive bias (the tendency to make a decision) to justify sunk costs with further investments, even though the current costs outweigh the benefits.

The sunk cost fallacy is staying seated in the cinema even if you dislike the movie. It’s the horrible book you nevertheless finish. It’s the altcoin that you keep holding at a loss even though you believe other cryptocurrencies will do better.

It’s an escalation of commitment where people justify further expenditures for a past decision based on the sunk costs. Failing to see that the costs will not be recovered, they misjudge their other options given in their current situation. A contributor to this may be loss aversion, the tendency to avoid losses rather than seek out equivalent gains.

We may feel guilty or regretful for not following through on our past decision, but it could simply be a display of good decision-making skills. Not following through on a past decision could mean seeing through loss aversion and the sunk-cost fallacy to focus on the benefits that come with a change of course.