From the course: Problem-Solving Techniques

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Account for the sunk cost paradox

Account for the sunk cost paradox

From the course: Problem-Solving Techniques

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Account for the sunk cost paradox

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- [Instructor] I just want to explain something called the Sunk Cost Paradox to you now. It's something that might cause you to choose the wrong option when you're working on a problem and it tends to affect the really important questions of whether you should spend time or money on things. Here's an example. Imagine your company is working on developing a plane that's invisible to radar, and you've spent $90 million so far, you've just got $10 more million to go. When a competitor suddenly brings out a plane that's better than yours, which means that yours will now probably only sell in much smaller quantities, would you spend the last $10 million to get your plane finished? Most people say they would. But now imagine you haven't spent anything yet and you have the option to spend $10 million to develop a plane that's invisible to radar but you know there is already a competitor out there who is better than the one that you could make. Would you do it? Most people say, they wouldn't.…

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