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HomeMoney MattersSunk-Cost, Status Quo Bias, and a Check for $559,000

Sunk-Cost, Status Quo Bias, and a Check for $559,000

In his article on how to prepare for drought, Dallas Mount talked about how our attachment to the animals we currently own can be detrimental to surviving a drought saying, “I won’t deny that having a home raised cow herd has advantages in experience and adaptivity. However, reluctance to liquidate cattle we love is like a ball and chain around the neck of many ranchers.” And this doesn’t go for just our animals. It goes for anything we own.

What Dallas is talking about is “Sunk-Cost Bias” – the tendency to over value the things we have. It goes hand in hand with “Status-Quo Bias” – a tendency, when faced with a decision, to default to the way things have always been. Both these biases can prevent us from being good graziers and running successful businesses.

Fortunately, Dallas also has an exercise we can use to help us overcome these biases. This practice works with anything we own, but in this case, we’re going to use cattle ownership as an example. I’ve set out his steps here, but you can also watch him describe them in the video below.

Step 1:

Make a four-column chart. In the first column list the classes of animals you own. In the second, list how many of each class you have. Then in the third column write down what that class of animal would bring if you took it to market. For the last column multiply the value of the animal by the number of animals you have to get a total value for that class of animal.

Here’s what that would look like with Dallas’s example:

Class of Animal Quantity Value Total
Old Cows 150 $700 $105,000
Mid-Age Cows 200 $1100 $220,000
2 year old heifers 100 $1200 $120,000
1 year old heifers 120 $700 $84,000
Bullls 30 $1000 $30,000
$559,000

Step 2:

Write yourself a check for the dollar amount that you came up with in step 1.

Don’t just imagine yourself writing the check. Actually write the check. Seeing it as real helps your brain overcome its own biases. Really, I can’t tell you how much fun it was to write myself this check. Try it! Download your own blank check here. 🙂

Step 3:

Now, instead of having these animals, you’ve got this capital. Holding this check in your hand, ask yourself this key question:

How would you deploy this capital to create the business you want?

Factor in today’s feed conditions, today’s moisture, the moisture in the ground, the feed in the pasture, and ask yourself, how would you deploy this capital to create the business you want?

As Dallas says, maybe you’d buy these animals. Maybe you’d buy only some of these animals. But that’s the question.

Take it from Dallas. “This process will help you get beyond locking down into this status quo, into this sunk-cost bias and help you think more clearly about the way you deploy this capital to create the business you want.

 

Want More?

If you liked how this exercise helped you, you’ll also like the Profit Tips newsletter and the Ranching For Profit FirstSteps.

P.S. What are you going to do with your paper check?

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Kathy Voth
Kathy Vothhttps://onpasture.com
I am the founder, editor and publisher of On Pasture, now retired. My career spanned 40 years of finding creative solutions to problems, and sharing ideas with people that encouraged them to work together and try new things. From figuring out how to teach livestock to eat weeds, to teaching range management to high schoolers, outdoor ed graduation camping trips with fifty 6th graders at a time, building firebreaks with a 130-goat herd, developing the signs and interpretation for the Storm King Fourteen Memorial trail, receiving the Conservation Service Award for my work building the 150-mile mountain bike trail from Grand Junction, Colorado to Moab, Utah...well, the list is long so I'll stop with, I've had a great time and I'm very grateful.

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