A framework for ignoring sunk costs: "New situation, new decision"

Ah, sunk costs. We all know we should ignore them. It's harder said than done, like most things in life.

I want to share a framework/mental model I've found helpful to think differently about sunk costs:

It's called: "new situation, new decision."

Why it's hard to get over sunk costs

Sunk costs remind you of everything you wasted. Even the words "sunk cost" feel bad. "Sunk" reminds me of the Titanic, a sinking ship, and sunken eyes. It feels heavy.

And "costs." Who likes costs? This reminds me that I already spent money on this thing and I feel stupid. I feel regret.

We're not logical creatures. We're very much affected by how words sound, how concepts make us feel, what they remind us of. "Sunk costs" is an excellent example of this because the phrase itself has a negative connotation.

[Side note: Speaking of the importance of positive connotations in naming, in 2002 the plum industry changed the name of "prunes" to "dried plums." Prunes sound shriveled and wrinkly. They were associated with laxatives.

On the other hand, "dried plums" were like any other dried fruit you'd pay $7 a bag for at Whole Foods. Dried apple rings, dried banana slices, dried apricots. It sounds like a treat. This was so powerful it changed the way people perceived and experienced eating dried plums.]

My theory is reminding yourself of sunk costs creates a dark spot in your memory of all the times you screwed up. Who wants that?

Why you should use the "new situation, new decision" framework

Here's why replacing "sunk costs" with "new situation, new decision" is better:

1. It's forward looking. It reminds you of your own agency.

Sunk costs are backward-looking. "New situation, new decision" is about the NEW situation is, and how you will make the most of it.

If you can still influence a situation, that's a great place to be. It means you can use your smarts, resourcefulness, and grit to figure something out. You're still in the game.

2. There's an implicit acknowledgment that situations change.

"Why didn't I do that differently?"

"I wish I had known."

"I wish we hadn't done that."

All of these are misleading narratives, swirling around in your head. You have to remember: You did the BEST YOU COULD given the information you have.

When you have new information, you can update your decision to do what's best going forward. This applies to both micro and macro decisions. The focus is on your current reality—whatever it may be—and the decision you still have control over.

3. There's a built-in trigger to make a new decision.

Sunk costs sit still. Even if you acknowledge it, it's this thing just sitting there.

On the other hand, "new situation, new decision" has a bias toward action. The structure is, "if this, then that."

If there is a new situation, then we need to make a new decision. So you focus less on what went wrong, and more on what you should do next.

How you can use this framework starting now

The next time you feel guilty about needing to update your strategy or change direction, don't kick yourself. Remind yourself of "new situation, new decision." You're constantly learning and getting better, and making new decisions is a sign that you're moving forward.

This framework is useful for speaking in shorthand with your team. I've used it, and I've had the people around me use it to remind me. That's the benefit of working with people who speak the same language. You can remind each other of frameworks when one of you is shrouded in a dark cloud of guilt. You can help each other see a better path.

Shorthand: "New situation, new decision."

What this means: "We thought things were a certain way, but things changed. Now we should update on our approach. New situation, new decision. What should we do now that will give us the best chance of getting to where we want to go?"

Think of this framework the next time you or your team feels guilty about sunk costs. Email me when you use the framework. I'm curious to see how it works for you.