Why some continue to invest in losing ventures

I have a longtime friend. He is facing the classic rock and a hard place. Fume date is on the near horizon, and it is likely that the company he is heavily invested in both emotionally and financially is going to die.

I asked him quietly what he thought he might learn from this misadventure. He presciently said, “I stayed with it too long. In too deep, over-extended, too much money, maybe more oversight of the CEO.” He is a smart guy. Why was he blinded? Why did he continue too long toward the dead end?

Wharton professor Marius Guenzel has written on this subject, and he says that many corporate leaders continue to invest in losing ventures, hoping they can turn a profit. “Firms systematically fail to ignore sunk costs and this leads to significant distortions in investment decisions,” he writes. We’ve come this far, it’s right around the next corner. Meanwhile, Waze shows a cliff just around that next corner.

It is in our human nature to not want to give up, throw in the towel, head for the exits, be a loser and a failure. That can put you into therapy, for sure.

Guenzel says, “People tend to stay committed to ventures in which they have invested substantial resources” in direct contradiction to the adage about throwing good money after bad. Resources are as much emotional and psychological as they are financial.

If one feels personally defined by a project or a company or a relationship, then it is our nature to be very reluctant to give it up. You act in a way that attempts to justify the decisions you made in