I think the concept of escalation of commitment or loss aversion is an interesting topic from this week’s reading. This is when a company is overcommitted to a decision or strategy. For example, a company has taken a business move that has cost them money, yet they stick to that plan because they are so determined to make it work, even though they are still losing money. The best situation would be to cut their losses and move on to a different strategy. This relates to a term in economics called sunk costs. My teacher told her that her lecture on sunk costs helped one of her students ditch a negative relationship. A sunk cost is something you cannot get back, in this example it was the 3 years the girl had been with her boyfriend. She was better off cutting her losses than losing anymore happiness and wasting more time. Companies should do the same, cut their losses to minimize the amount of damage a bad decision will create.
Loss aversion is an interesting idea. Sometimes people feel that if they "stick it out" long enough, things will turn around for the better, which may happen but probably will not. They will most likely keep digging a deeper hole for themselves and keep losing money and time due to their determination and stubbornness. It is interesting that loss aversion in marketing can be related to a relationship like the student in your class. Sometimes people do not want to accept that they made a bad decision and are losing in a situation, so they keep pushing and hoping for better.
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