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Pot‐Committed: When Sunk Costs Hijack Strategy
Being pot‐committed isn’t courage. It’s compulsion dressed up as commitment.
Strategy Models
May 13, 2025
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When poker players shove more chips into a losing hand, they call it being pot‑committed. In our businesses and careers do the same every day. We double down on bad bets because walking away feels more painful than pressing on.
Key idea: The sunk‑cost fallacy makes us defend yesterday’s investment instead of maximising tomorrow’s return.
Origin Story (Poker & Game Theory)
Game: No‑Limit Texas Hold’em.
Moment: You’ve already bet half your stack pre‑flop; pot odds say “fold”, ego says “all‑in”.
Lesson: Prior investment should be irrelevant to future decisions.
Further reading: Sklansky’s Theory of Poker | Stanford paper on Sunk Cost
Pot‑Committed in Business
Company | The Bad Bet | What Happened | Cost |
|---|---|---|---|
BlackBerry | Clung to physical keyboards | iPhone & Android eclipsed them | >90% market share lost |
Blockbuster | Kept brick‑and‑mortar focus | Ignored streaming shift | Bankruptcy |
JC Penney | $ BILLIONS on rebrand without testing | Customers fled | CEO ousted |
Why? Executives defended sunk retail footprints, legacy products, or personal pride instead of reallocating capital.
Flip It: Pot‑Discarded Wins
Adobe killed boxed software early, betting everything on Creative Cloud subscriptions.
Nintendo abandoned the GameCube arms race, pivoted to casual gamers with the Wii.
HubSpot dumped outbound tactics to pioneer “Inbound Marketing”.
Result: Revenue compounding > nostalgia hoarding.
Career Corner
There are plenty of pot-committed areas in career as well.
Pot‑Committed Traps:
“I’ve been here five years, can’t leave now.”
“I already did an MBA, must stay in consulting.”
“I’m too senior to learn AI tools.”
Fold & Re‑deal:
Audit your skills annually. Keep, cut, or double‑down.
Set “stop‑loss” triggers (e.g., if role learning <20% YOY, time to pivot).
Seek small experimental projects to test new arenas without full quit.
Behavioral Science Bit
Sunk‑Cost Fallacy: We value recovery of past investment > new marginal gain.
IKEA Effect: Effort increases attachment.
Loss Aversion: Loss feels ~2× stronger than equivalent gain.
Combine these, and you get executives clinging to doomed products like gamblers to cold decks.
Strategy Tips
Strategy is knowing when to feed a winner and when to starve a loser.
If that sounds a bit harsh, think of it like fold with flair, reinvest with relish.
Practical Checklist:
Write down last year’s big bets. Would you fund them today?
Hold a “Kill/Keep” meeting each quarter—no sacred cows.
Celebrate smart exits as loudly as big launches.
Quick Links:
If this helped you spot a sunk‑cost trap or gave you permission to walk away forward it to one colleague who’s still “all‑in” on a losing hand.
See you next week with another Strategy Model! 🎱