A couple of months ago I had a discussion with a large law firm that was considering my company’s Secure Cloud Fax solution as a replacement for their outdated on-premise fax server. After a detailed cost analysis they determined that our solution would deliver significant cost savings, in addition to providing many other benefits that their existing fax system simply couldn’t offer. Based on that information, I assumed that the sale would be a slam dunk. Why would they possibly decide to stay with a solution that was more expensive, was complicated to maintain, and offered fewer features? As it turns out, I was wrong. The sale turned out not to be a slam dunk after all.
After some soul-searching I began to think about the psychological factors driving their decision making process. I asked myself whether there might be areas within my own life where a similar thought process might be in play. Is it possible that I too have fallen victim to the phenomenon that experts refer to as the “Sunken Cost Fallacy”? The Sunken Cost Fallacy occurs when a person (or in this case, a company) is reluctant to abandon their current approach, simply because they have already invested a lot of time or money in it. This often occurs even when it’s clear that abandoning the old approach would be more beneficial. If you have an expensive shirt in your closet that doesn’t fit, or if you’re determined to finish the filet mignon even when you’re uncomfortably full, then you may be experiencing the Sunken Cost Fallacy at work. I’m guilty on both counts; but unfortunately there are even worse examples. My family health plan costs hundreds of dollars per month, yet I’m limited to working with doctors that are inconveniently located. The copays for those visits are roughly the same as what I would pay in cash for an office visit with a different doctor down the street. Why am I doing this?
The answer is a deep-seated psychological need to validate past decisions. The law firm I was trying to sell to had already spent thousands of dollars on hardware and software. Even though there was no way to recapture that expense, they were willing to keep digging a deeper hole. There is some good news, though; people can change. Ultimately, that law firm pulled the plug on their expensive fax server and chose to move to our Secure Cloud Fax solution instead. I decided to take a lesson from this situation as well. After wasting far too much time on inconvenient doctors’ appointments, I’m finally shopping for a better family health plan.
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