Sunk-Cost and Status Quo Bias – Getting Over These Hurdles to Success

In last week’s 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 that 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 $559,000.

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 youself, 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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