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Chasing Losses- A Detrimental Practice to Avoid
On the topic of bad decisions, chasing losses is a common issue that gamblers and many other people in society face. The decision to walk away from a bad decision is one that takes guts. Deciding to leave a loss in the past and move on to something that takes a lot of will that's something that takes practice.
Chasing losses is essentially the decision to pursue risk to make up from what you've lost in the past. Many problem gamblers will take this stance and they will pursue losses to grave consequences. Moving away from a large loss, especially if you put down capital and lost it is like lifting a 50 lb dumbbell- it's hard and can be painful in the short term.
The sunk cost fallacy means that what you put down is the past. If you wagered away your $10,000 and lost it all, that was a sunk cost that you cannot get back by chasing losses and taking on ridiculous risk. You may succeed in breaking even, or even making more than the loss, but it's not worth the heartache. It's a sign that the risk was too great, and you need to take your lumps and move on.
In one way or another we all chase losses. Be it in romantic pursuit, gambling or trading- it's in human nature to want to salvage something that we put time and effort into, even if it's to our detriment. Our belief that a previous sacrifice or push justifies digging a bigger and more dangerous hole is a malicious part of human psychology we must overcome.
To avoid taking on even more losses, we need to understand the sunk cost fallacy. The sunk cost fallacy means that we believe that if we have made an investment in the past we need to follow through on our decisions to the bitter end. It can become a bit circular because we've done something in the past, we need to revive the actions we took to recover and so on. Sometimes it's best to walk away learn our lesson and not go back to the thing that has cost us loss.
Long-term thinking is key to breaking through chasing losses. If we know that something costs us loss, pursuing to make up that loss may cause us to make more losses- where will we be in 5 years? How can we make sure we avoid further harm? Is it wise to dip back into old actions and circumstances, or to try new methods?
Gambling is especially harmful to people both financially and mentally. It induces a type of mania and greed that creates fertile ground for losses. When we fall into loss we sink into it like quicksand and we dig our way deeper and deeper- but the key is to completely avoid the swamp. If you know something is harmful for you avoid it and if you learn a painful lesson learn to avoid future penalties. Chasing losses is something that's regrettable many people do it if you find yourself slipping make sure that you correct.
