This
website is based on a book that uses the movie, Monty Python
and the Holy Grail, as an analogy for the life in a modern corporation
- an illusive objective, bloated egos, a dysfunctional leadership
team, and idiocy all around. DEC 4
THE BLACK KNIGHT - IT'S ONLY A FLESH WOUND
KNOWING WHEN TO CUT YOUR LOSSES
Still
trying to find knights worthy of the round table, Arthur happens upon
the Black Knight battling and defeating a green knight. At last Arthur
has found his COO! However, the Black Knight is not interested in
joining Arthur nor will he let Arthur pass. Arthur has no choice but to
fight the Black Knight. Handily, Arthur cuts off his arm, but the Black
Knight blows him off and exclaims that it is only a flesh wound. Thunk,
there goes his other arm. Still, the BK will not budge. He can kick
Arthur. Frustrated, Arthur hacks off both his legs, leaving only a stump
of a knight behind screaming for Arthur to return and continue the
fight. Of course, true to Monty Python, each loss of limb is
accompanied by a copious amount of blood squirting profusely from
the points of severance.
When you watch this scene (available on the YouTube Monty Python channel), you wonder how on earth could the Black Knight continue to fight and lose all his limbs. From the outside perspective, this behavior is absurd. The sad thing is that this behavior isn't all that far from what happens in real life. Have you ever watched someone at a casino who is losing quite badly and continues to place riskier and riskier bets? It's quite painful. Here's my take on what the black knight is thinking to justify the loss of his limbs:
“Good God, I’ve just lost an arm! He cut off my arm! Maybe, he’s a better fighter. Maybe I should just concede and let him cross. But no, I’ll have lost my arm for nothing. I’d have lost the fight and lost my arm. I could still win this and then the loss won’t be in vain, so keep fighting. What? My other arm is gone! @#$%&!!!! Well, I can’t stop now, then I would be armless for no good reason and have nothing to show for my losses. My leg is gone! Impossible! Well, now I really can’t stop. I don’t have much left to lose. One last thrust and I can stop him. Oh no!”
Doesn’t it ring just a little bit true? What about this next example?
You’ve just done your taxes and calculate that, due to some good
investments, you owe the government $3000. You don’t have this money in
cash, so you will have to liquidate some stocks in order to pay this.
Two years ago, you invested $10,000 in two different stocks but similar
investment types, with 5000 in each. Stock A has not performed well and
your investment is now worth $4500. Stock B has performed well and is
worth $6500. Neither company has any management changes nor other
changes planned. Which one do you sell in order to pay the IRS?
Many people report that they would liquidate B in order to take the
profits and avoid the losses. Why would you liquidate a good investment
and keep a bad one? Yet, the same people, if they had additional money
to invest, would put it in stock B.
There is a well-documented phenomenon called loss aversion that plays a huge role in why we can't cut our losses sooner than we should. We just hate taking a loss even when we can never recover those sunk costs. This is why companies often choose to throw good money after bad into risky or just downright bad projects in the hopes that somehow all the money wouldn't be wasted. This is what happened with the Concorde. During its construction, both Britain and France realized that the SST would never be economically viable, but because they had already invested so much money, they went ahead a built the planes. Somehow it feels better to have something for the money than to have nothing, even when rationally thinking, cutting our losses and using that money for something else would make a lot more sense.