Entrepreneurs often get burned by a failed investment (like a bad ad agency) and become hesitant to invest in that area again. This is a cognitive trap. The first loss was the money spent; the second, more significant loss is the opportunity cost of not trying again with a better strategy.

The effort invested in sourcing and negotiating a deal can create a psychological bias to complete it. To combat this sunk cost fallacy, ask: "If this opportunity appeared today with zero prior effort, would I still write the check?" This separates effort from the actual investment decision.

To combat inconsistent ("noisy") decision-making, Daniel Kahneman advocates for "decision hygiene." This involves breaking a large judgment problem into smaller, independent components, evaluating each separately, and only then combining them. This structured approach prevents a single unreliable intuitive leap, which is a major source of error.

Work by Kahneman and Tversky shows how human psychology deviates from rational choice theory. However, the deeper issue isn't our failure to adhere to the model, but that the model itself is a terrible guide for making meaningful decisions. The goal should not be to become a better calculator.

To decide whether to sell a long-held asset you're attached to, imagine it was sold overnight and the cash is in your account. The question then becomes: "Would you use that cash to buy it back today?" This reframe bypasses status quo bias and the endowment effect, making the correct decision immediately obvious.

Gaonkar admits a major mistake wasn't just selling NVIDIA too early, but failing to re-evaluate it later. The sunk cost bias makes it psychologically difficult to revisit past decisions, especially ones that were wrong, causing investors to miss out on significant future gains.

The common advice to overcome sunk cost fallacy—"imagine you didn't own this, would you buy it today?"—is ineffective because you cannot truly ignore the reality of ownership. A more robust method is setting pre-commitment contracts or "kill criteria" that force a decision when specific signals are observed.

Once people invest significant time, money, and social identity into a group or ideology, it becomes psychologically costly to admit it's wrong. This 'sunk cost' fallacy creates cognitive dissonance, causing people to double down on their beliefs rather than face the pain of a misguided investment.

Known as "resulting," this bias makes it impossible to evaluate decisions fairly. We may deem a choice poor simply because it led to a loss, even if the process was sound. This prevents learning from probabilistic events and encourages chasing lucky outcomes instead of repeatable strategies.