For most high performers, achievement is not the challenge. Alignment is.
You have alignment when what you do and experience matches with your values and desires.
To achieve that, we need to make big or small adjustments consistently. And sometimes, we need to change direction.
Changing direction is not easy.
Three psychological illusions make it hard, and we will unpack them here.
1. Sunk Cost Bias
As a Google employee, you needed at least three-quarters of an “exceeds expectations” rating to be considered for a promotion. In the eight years I worked at Google, we had performance reviews quite frequently.
In 2014, I had achieved the desirable “above expectations” track record, and I was up for promotion… right as I went into labour with my first child. Talking about timing.
When I came back from maternity leave, I kept pursuing that promotion, even though it was no longer aligned. During my maternity leave, I studied coaching and fell in love with it. I wanted something different in my career.
My attachment to an antiquated goal was sunk cost bias in action. I had worked hard for that promotion! I thought that if I did not continue pursuing it, all my past efforts would be wasted.
Sunk cost bias is a fallacy where you continue an endeavor solely because of past invested resources (money, time or effort).
Some of the biggest corporate failures can be attributed to the sunk cost fallacy.
At its peak, Blockbuster was the go-to destination for movie and video game rentals.
Blockbuster had the opportunity to purchase Netflix in the early 2000s for $50 million. They declined the offer.
This decision was influenced by sunk cost bias. Blockbuster had heavily invested in its vast network of physical rental stores across the country. These stores and the inventory they held represented a significant sunk cost.
As a result, Blockbuster doubled down on its brick-and-mortar strategy. They continued to invest in physical stores and ignored the changing tide of consumer preferences. They filed for bankruptcy in 2010.
Unfulfilled people continue doing something not because they enjoy it but because they don’t want to waste their past efforts.
They are like a gamblers, too deep in the game to walk away, even when the odds are no longer in their favour.
Where in your life have you invested significant resources in the past? Could sunk cost bias be influencing your decisions now?
2. Endowment Effect
The endowment effect is a cognitive bias where people assign more value to things merely because they own them.
You might need to upgrade your job, staff, house or car, but you overvalue them compared to the market.
Nokia, once a dominant player in the mobile phone industry, developed the Symbian OS as its primary operating system.
The market started preferring Apple’s iOS and Google’s Android.
Despite these changes, Nokia continued to rely on Symbian. The endowment effect significantly influenced this decision.
The company valued Symbian more highly than the market did because it was their creation and possession. This overvaluation led to a reluctance to adopt or develop a new, more competitive operating system.
By the time Nokia recognized the need to move away from Symbian, it had lost significant market share to its competitors.
The company eventually adopted the Windows Phone operating system. This shift came too late to regain their lost position in the market.
What condition in your life do you overvalue because it is yours?
3. Loss Aversion
We are generally more sensitive to losses than to gains.
The potential losses (comfort, security, identity) associated with changing direction in life often seem more daunting than the potential gains.
According to the Pareto rule, 20% of our efforts create 80% of the results.
In his book “10x Is Easier Than 2x,” author Benjamin Hardy argues that every time we upgrade our impact, we need to let go of roughly 80% of everything we used to do.
Most people hesitate. Why? Because of loss aversion.
They are more focused on what they’ll lose, for example, comfort or security than what they’ll gain.
Loss aversion led Kodak, the leader of the film market, to bankruptcy.
They did not embrace digital photography early because they did not want to cannibalize their film products. They did not want to lose their established revenue.
Rather than focusing on the potential opportunity, they focused on their fear of loss. And it cost them everything.
Where are you focusing on what you might lose rather than the potential opportunity?
Conclusion: The Journey Towards Change
Influenced by sunk cost bias, endowment effect, and loss aversion, our minds often resist change.
We get attached to what is not working anymore. Blockbuster to brick-and-mortar stores, Nokia to Symbian OS and Kodak to film.
These stories are blaring examples of what happens when we let these illusions define our actions.
At a more personal level, we risk not just professional stagnation but lack of fulfilment and wasting of potential.
Imagine the impact many people could have had on the world if only they had the awareness to change direction when their current path was no longer aligned. We would live in a better world.
PS: If you enjoyed this newsletter, it would be great if you shared it with a friend. If you are new here, you can subscribe.