One mistake you make all the time, and how to stop

by Rafi Kronzon on October 1, 2014

Money Down The DrainThat stock was a sure thing! Now that’s it down 40%, you’re still holding onto it; thinking that you need to make your money back before getting out. Feeling down about your trading losses, you remember that you have tickets to the ballet that same night. You really just want to stay home, but since the tickets are nonrefundable, you force yourself to go and have a miserable time.

These are two example of the Sunk Cost Fallacy, a common reasoning mistake that almost everyone makes, and that can cost people a lot more than a bad theater experience.

To act rationally, we need to ignore costs that we’ve already paid, and make decisions based solely on future prospects. Unfortunately, it’s very hard for people to act this way – it’s just not the way we’re wired.

At Cartwheel, we see the Sunk Cost Fallacy in action all the time. For example, we meet a new client that recently bought a server that isn’t meeting his needs. After learning about his workflow, we find the business would run best if all his documents were moved to the cloud. Unfortunately, this costs money, and since the client already spent money on the server, he decides to continue using it – to the detriment of his business.

In this example, the rational thing to do is forget the sunk cost of the server, and evaluate the new solution based on a future cost/benefit analysis. But despite ourselves, many of us tend to assign value to sunk costs.

So how do we overcome this irrational bias? Unfortunately, it’s very difficult. Economists suggest making a hard-headed cost/benefit analysis, ignoring the sunk cost. But in many of the decisions we face, it’s hard to put a dollar amount on perceived benefits.  Psychologists suggest we separate the sunk cost from other factors that may be affecting our decision, for instance emotions like regret – another difficult task.

One thing that works for us is to seek advice from an unbiased friend, advisor, or accountant. Since the sunk cost isn’t theirs, they won’t be affected by it, and should be able to process the future cost/benefit better. So next time you find yourself saying things like “I really should X, but I already did Y”, stop, and call a friend.

Share

{ 0 comments }

Why you should still trust the Cloud

by Rafi Kronzon on September 4, 2014

tornado forming from wall cloud in central floridaThe recent celebrity nude pics are being used by the media to expose (yes, pun intended) the cloud as “fundamentally insecure.

These types of sweeping generalizations show a lack of understanding of what the cloud is, what it is not, and most importantly, good old statistical logic.

To illustrate the problem here, I’ll compare storing data in the cloud to flying.

Let’s say you want to travel from your home in Cleveland to Boston. You can drive your car, or you can take a commercial jet. You’re about to order plane tickets, and then hear that a terrorist blew up a plane in Indonesia. You read an article that calls flying “fundamentally unsafe”, and so you choose to get into your car and drive all the way to Cleveland, whistling happily in your safe, controlled vehicle.

As most of you know, this is a bad decision. While you may feel like you can control your car and are an above-average driver*, the driving environment is significantly more dangerous than the flying environment.

In your driving environment you have thousands of cars, unlicensed drivers, drunk drivers, sleepy drivers, poorly maintained cars, and bad road conditions, just to name a few of the dangers. The plane, on the other hand, has an open highway, maintains its engines, performs security checks, has backup systems, has professional pilots and navigators, performs drug testing, etc.

Storing documents in the cloud is similar to flying in a plane. The well-known cloud providers do a much better job of protecting your data than you can by storing it on your own PC and backing it up to a hard drive. Do they get hacked sometimes? Yes. Should you be smart about using all the proper security features? Of course. But that doesn’t mean you should stop using the cloud. You’re better off letting experts secure your information than trying to do it yourself.

Unless of course, you want to stay in Cleveland forever.

*Coincidentally, this is another statistical boo-boo. Because of the way we’re wired, most of us think of ourselves as “above-average” drivers. In a famous 1981 study,  93% of us consider ourselves above-average drivers. This is known as Illusory Superiority.

Share

{ 0 comments }

Pop Goes the Kozmo

by Rafi Kronzon September 3, 2014 Articles

What really pushed me over the edge was the recent news about yet another food delivery service launching in San Francisco. My favorite quote from the article reads like a satire of venture capital funding; “…with competitors like Sprig taking on funding alongside competitors like Chefler and Munchery….” Munchery? Really? These businesses all run food delivery services. They pick […]

Read the full article →

The End of The Password?

by Louise Pope July 23, 2014 Alerts

Ask anyone what their biggest fear about using their computer is, and the most common answer you are likely to get is being hacked.  With reports of viruses that target passwords impacting industry big shots like eBay and Amazon, it’s easy to see why people may be nervous.  Like many, much of my identity is now […]

Read the full article →

Yay or Nay: Wearable Tech in Business

by Rachel Racanelli May 14, 2014 Articles

I’ve done posts on wearable tech before, but never about its future integration within businesses.  While we are still on the forefront of wearable tech for personal use, it’s looking likely that businesses both big and small may be adopting it sooner than we think.  I’m curious as to what growing pains may come out […]

Read the full article →

Ask an IT Guy: Failover

by Rachel Racanelli May 13, 2014 Articles

While I’m not the most technically inclined person in the world, I’m no slouch.  However, because I have a group of technical geniuses around me, there’s no reason for me to ever ponder how our technology runs so smoothly in the office.  After a quick discussion with one of the guys, I realized it makes […]

Read the full article →