Chage is hard. Especially when it feels like you have to let go of something you’ve invested alot of time, money and emotional labour to build. In the first of their short SHOT style episodes, Ryan and Terry talk sunk costs and how they hold us back. Then, they walk through powerful strategies for getting out of our own way, and making the big moves that will get us more of what we want (and less of what we don’t).
What you'll learn
Links and resources
Terry: Hello and welcome back to the passive income project podcast. This is Terry Ryan, Welcome!
Ryan: Good to be here, mate. Excited about this one
Terry: Yes. It’s a bit of a surprise. If you’ve been listening to us for a while, you know, that we always do kind of deep. into us. We’re always spending a fair bit of time, really diving into a topic and exploring it in and out. but we’ve been getting a lot of feedback over the past year. or so people just asking us to publish more often, There are people that are a bit more prolific than we are and we’ve been trying to figure out a way to do this we give you what you want, but we don’t sacrifice substance as well. So what we’ve hit on is just a bit of an experiment. What we’re going to start to do is give you a new format, which is shorter and sharper, but still deep. So we’re going to talk about one simple idea that we’ve been talking about or thinking about that we think is relevant to the conversation we’ve been having. We’re going to dive really deep on that one idea. but We’re going to try to do that in about 10 to 15 minutes tops. So consider an experiment would love to hear your thoughts on this. but mate, what’s our first topic going to be?
Ryan: No, I’m excited about it. Just to hit on that point. I’m excited by this because, I know that there is lots of people that the commute to work. It’s only 10 minutes or 15 minutes, or, like I’m in smaller doses.
So, and I’m very much the same. And the first topic that we’re digging into is we’re looking at sunk costs or otherwise known as the sunk cost fallacy. And I do think this is a really timely one as we’re kind of talking about business and in particularly the conversation you and I had around, transitioning and potentially using business as a vehicle for fast tracking your financial progress, because it’s so easy to get stuck on a path that you’re already on, and this is really what that speaks to. So the sunk cost fallacy is basically it’s our tendency to follow through on an endeavor once we’ve invested our time and our effort and money into it. Even if we see that where it’s taking us is not where we want to go. Yeah. If the costs outweigh the benefits, basically.
Terry: Hmm. Okay. that’s a, that’s a lot of words. So maybe let’s break it down. let’s take it from geek. speak to real talk.
Ryan: Alright mateI know you’re really good at this real talk business. Tell me about it. What is it?
Terry: Well, I’ll just recognize when you double down on decisions that maybe did serve you at a time, but I no longer serving you now and in your heart of hearts, you know, it.
Ryan: Yep. So basically what you’ve just said is I’m a geek and you’re straight up.
Terry: You said it might not me.
Ryan: I agree with that. So what’s an example of it. When is the time when you kind of experienced this?
Terry: Well, I reckon the classic one is, you know, you find yourself in the supermarket, and you’ve done. your shop and You know, There’s only one checkout, open. And so you go to the checkout and you wait faithfully and diligently and you find yourself kind of moving up the line, moving up the line and boarding it’s off. And then your next cab off the ride. And just not too, not too long before you’re about to get, the next go at it, you look to your left and a new checkout opens up and you’ve got this dilemma in your mind. You’re like I could go across and get that. But I’m just about to get, served right here as well.
And I’ve also just been waiting in this line for 15 minutes and then this is hesitation. And as you’re hesitating somebody, that’s just finished, their shop goes oh, excellent. New checkout just jumped straight in that’s classic that’s classic. sunk cost fallacy I reckon
Ryan: So if I ever see you or anyone ever sees you in the shopping line and you look like you’ve got a crook neck, you’re just going on left right left. Right. looking confused as how you’re experiencing the sunk cost fallacy aren’t you?
Terry: Yeah. Most probably. Yes.
Ryan: Uh, nice. another example I think is quite prevalent is, staying in a job that you know, is no longer serving you. Like you kind of your sense that it’s not the thing that’s helping you get to where you want to go. And. I think your story speaks to this quite well in terms of the transition you made from sport to what you’re doing now with me, you found that there,
Terry: Absolutely Arik. And, uh, I was in this place for probably two or three years, and I was kind of working through it with a mentor and I knew that it wasn’t my future direction. And, um, it was this It’s hard because you’ve built up, your qualifications, you built up your reputation, you’ve got connections.
You’ve probably got opportunities coming at you like. I had job offers coming at me at that point. I was hard to find in terms of my skillset in terms of sport, not getting Job offers from overseas. People are come over and live here and work with us. And, Uh, Dave down I kind of know, I know that’s not where I want to end up. Yes, it’s okay for now, but I know it’s not where I want to end up. So every choice that I make, it keeps taking me down that path and it’s a tough place to be all this emotional labor invested in that previous version of you, and you’re kind of now thinking, well, there’s a new version of me that I want to explore and you just don’t quite know what that looks like.
So absolutely. I felt this, But what I found interesting as well though, it’s not just, your own idea of yourself that you’re coming up against and that sunk cost, but also other people’s sunk cost of you. So like people see you a certain way because they know you as that person. So people, I know from sport that I have conversations with now I can tell in their mind it doesn’t make sense. for them. And the reason is because I’ve got a big sunk cost. Of seeing me a certain way, knowing me a certain way. And so I always call it, say the same sort of thing. It’s like so what are you doing now? You do a what?
And basically what’s going on in there. Brian is like, Hey, look, I’ve already done the work to figure you out. Like I’ve got you in your box. And then you just jumped out of the box. Like, What’d you do that? for now? I’ve got to do more work to figure you out. Like, why did you do that to me. it’s sort of, It’s interesting. And and I reckon You’re half up against that as well. When you’re thinking about making a big direction career wise, you’re halfway up against the knowledge that you’re going to come up against these conversations and people are going to be, what are people going to think? What are they going to say? All that sort of stuff. This is all going on in your head.
Ryan: and it’s also where you find that you fit in because you’ve worked hard basically to fit in, in one place, with those types of people. And now you’re talking about doing something different in a different domain and how you figured that part out, as well as how you perceive yourself as well, like the type of person, your identity, you thrown all that stuff up in the air and having to kind of make it land again.
And I know another example for me is kind of thinking about relationships and, you know, staying in relationships. It clearly not working, sometimes, maybe even toxic and you pushing the pain of that conversation away. Like a breakup, for example, we are pushing it back, even though you know, the longer that you push that back, the longer it is before you actually get to meet the right person. And also you increase the danger of that right. Person meeting somebody else as well. So the opportunity actually fleeting you too.
Terry: Yeah, I think that’s an interesting insight. Like you -think you’re not really, you know, It’s not costing you, but it is every moment you’re not on the new track or looking for the new track is a moment that you’re missing. And there’s important information and data that you could be gathering at that point.
Ryan: Yeah. It’s time and energy costs focusing on the wrong things or doing the wrong things or heading in the wrong direction. And also, the passing of opportunities to be, to capitalize on as well.
Terry: Yeah. Spot on, spot on. Let’s talk about how it works Like what’s going on in the brain and, and like, why do we do this?
Ryan: Basically, you know, we overweight what we know and what we’ve done, and we underweight the unknown and the. So I know in your language, you kind of say, you know, we can flight safety with certainty and it’s basically the things that we’ve tried and tested, even if, you know ,it’s not exactly completely serving you, taking you to where you want to go, just because you know it and they become comfortable with it.
And there’s a level of certainty around the results or, you know, the life that that is bringing for you. That still feels better than the other side of it, which is unsafety or uncertainty, you know, and the, and the response that, that creates within the body. And I know that you mentioned it a really good quote earlier kind of speaks to this. you don’t share that.
Terry: Yeah. I don’t know where it comes from. Maybe a listing can tell me, but, the quote is most people live lives of quiet desperation. I think a lot of that. comes back to sunk cost, or I think That’s a big part of the reason for me. And it. It’s interesting to maybe it’s a, what I call a cognitive bias. Like it’s a mental mistake that our brain makes predictably. And the reason is, is because millions of years of evolution have programmed us to think this way, because it’s better for humans to think this way. But it’s not necessarily better for you. as an actor. That’s how it’s really important to understand that. Like, when we talk about these cognitive biases in general, These are good ideas. When it comes to a specific example, you are an example for you. This is where you got to try and work your way out of it. And really think, does this suit me? Because I think there’s a certain element of wisdom in it when you think about career wise? yes, you’ve got like a whole lot of work, a body of work that you are now benefiting from, and you’ve got compounding working for you, particularly from eight, 10 years in that career reputation. All those things are there. So there’s some wisdom in that, but if things have changed, You’ve got to change as well, and that’s where it’s tough. You’ve got to really kind of unravel a thinking and really, focus on what you want not what you don’t want.
Ryan: Um, and that’s really survival instincts. Isn’t it like avoid made it danger, even at the cost of long-term danger.
Terry: Yeah. What’s better to survive today, then potentially get better tomorrow. It’s better to survive today.
Ryan: And what do you think we should do to step around this mental mistake? Like how do we overcome these biases?
Terry: Yeah, I reckon there’s a couple of things and the first one I liked the way Seth got and thinks about sunk costs. He frames it as a gift from your previous self. Why I like that framing is because it kind of acknowledges that there is a previous version of you, and that’s different to the current version of you and those two people are different. And the gift from your previous self is the knowledge that. What you’ve done has been useful up until that point, but it’s also not going to take you where you want to go. Now that’s the knowledge. So if You accept that as a gift, you can start to work with the information as opposed to be control by it so I think that’s a really good way. And I think the easiest way to do that is just to ask yourself this question, if you starting out today, what choice would you make? Cause that kind of ignores everything that’s happened. That’s, that’s a really powerful question to help you do that. And just, I guess, separate those two things. I know you’ve done a fair bit of work with members around some of this stuff as well. They’re thinking like, what are some ways that you’ve really helped people separate themselves from the situation
Ryan: What I’m saying is like, when you can remove yourself from your own situation and try to coach yourself, even sometimes you have to pretend that you’re a different person and you thinking about someone that’s in your position experiencing all of the same things. What does it look like for them to continue on the track that they’re heading and sometimes you can actually identify who that person is, where that person ends up. Maybe there’s someone in the office, you know, Karen or Greg in the office.
And they kind of just, a little bit regretful, a little bit resentful because I didn’t make some of those bigger decisions. Change, track when they knew they needed to. It’s kind of a chance to look at it independently, with a little bit of distance and then think about it more objectively as well.
Terry: Yeah I like that. The other one, I recognize that Jeff Bezos, his story is pretty instructive. And if you don’t know who he is, you know who Amazon is, he’s the guy that built it. When he was having the idea for Amazon, he was working, as an investment banker and he was on very lucrative career track. Like he was already a wealthy man as a young man. he knew I was going to be quite wealthy going forward. Right. It’s just a absolute rising star in the field. And he hit on this piece of data, which was the rate of growth of the internet. And he’s like, I want to be a part of this? I don’t know how . or why, but I want to be a part of it. I want to start something. So we had this idea to do it. and, so he goes to his manager. who was also his mentor and he’s managed to go is, look, that’s a fantastic idea for somebody who doesn’t have your future, you’re going to be giving up a very certain future here for that idea to chase that. dream. And so you would think that would send you in a bit. of a tail spin and you know, you’re going to go off and really do all the math, and put out all these complex modeling to figure out what you should do, But you just use a Very simple thought experiment. and He calls it. a regret minimization framework.
And It’s basically just the idea. that, if your job in life is to have the least regrets when You die, you want to just project yourself forward to when you’re 80, 85 and you can’t really do a whole lot physically now. You got to think about what you would do to minimize regret. Basically the question is Would I regret not having a go at this If I got to 85 is, or the answer is yes. and so I’m going to do it. And that is the extent of the analysis that he took to make one of the marks of the profitable decisions anyone has ever made in history. He’s the most wealthiest person in history. He just bought a $500 million yacht. he’s still would. Okay. but what’s interesting to me is it just, yeah, like it just cuts away. All the crap really just comes back to what is the whole thing about, and So I think that’s a really, really good way to kind of think through it but it also really helps you to benefit. from some really powerful. wisdom is a whole bunch of research that shows that when people get to the end of their life, the number one rule. Is the thing is they didn’t do the acts of omission, not the acts of commission. you never regret the things you did do in pursuit of what you want. You regret the things you didn’t Do in pursuit of what you want. And so if you want to get to that end point in your life, that’s probably something you really need to think about. And that regret minimization framework is super powerful way to be able to think through that.
Ryan: Love it, man. I think that does the whole thing. Justice.
And I think the other thing is like, just having the realization, that one, not deciding you are making a decision, if you’re pushing it back and kind of not making a decision distancing it into the future, you’re still making a decision to not decide. And that’s a big decision in itself.
Terry: Yup, definitely huge one huge one. You’re still deciding. And where you decide is where you end up.
Ryan: All right. Quick recap. So we started on what is sunk cost. So it’s really about doubling down on the decisions that you’ve made in the past that no longer serve you and kind of overweighting the track you’re on, as opposed to the track that you don’t know and how that forces us to conflate safety with certainty.
And then we talked about a few different things. So you mentioned that regret minimization framework, thinking about it through other people, distancing yourself from it and then coaching that person through it. And then also what Seth Godin says in terms of it being a gift from your previous self to say, look, this might not be it. It might not be the track that serves you because that’s huge. Like often knowing what doesn’t work is just as, if not more important than knowing what does cause a kind of cuts away. All of these potentially shiny things as well, that distract you from the things you need to focus on too.
Terry: Yeah, I love that. So hopefully you enjoyed this episode like you said, it’s a bit of an experiment. We would love your feedback. So if you want to give us that feedback and you want to converse with us, and sort of give your 2 cents, just jump into our circle community, there’s a link in the show notes. Like there always is, this is the best place to get in contact with us to have conversations. And while we’re at it. Massive. thank you for the people that have already told us what they think. We Put this idea out a couple of weeks ago, and there was a lot of. Strong opinions voiced on there, which, which we found really, really useful, And we’re keeping all of that in mind as we go. So, like we say, experiment. This is going to just help us test a few assumptions we’ve been operating under and uh, yeah, we’ll see how we go. in the future. So yeah. let us know what you
Ryan: Thanks for listening.