Written by North Carolina Treasurer Brad Briner
I’ll go ahead and apologize if you aren’t a sports fan… but with the Super Bowl and UNC vs. Duke in college basketball this weekend, plus the start of the Winter Olympics, sports are front of mind.
Let’s start with football. It’s not hard to guess who is my favorite Patriot – he’s the one with the deepest roots in North Carolina (and a wife who is responsible for about 10 extra pounds I’m carrying). But today I want to talk about their Pro Bowl cornerback Christian Gonzalez, because his play in the AFC Championship against the Broncos illustrates a very important concept in financial literacy – so called “sunk cost.”
In the first quarter of the game, Gonzalez gave up a long pass where he made a mistake in covering the Broncos’ receiver. It was simply bad defense and gave the Broncos a lot of momentum. I’m sure he was embarrassed – but he had a choice to make, hang his head and lament or get up and be better the next time. It’s clear what he chose. His interception late in the 4th quarter was the game-winning play for the Patriots and that is why they are playing in the Super Bowl this weekend. But if he had chosen to sulk, he could not have made that key play.
Which brings me to college basketball. One of the best quotes about learning from mistakes and moving on comes from the legendary Tar Heel coach Dean Smith: “What to do with a mistake? Recognize it. Admit it. Learn from it. Forget it.”
Unfortunately, that is easier said than done, particularly in managing finances. The phenomenon of letting a past mistake overly influence a current decision, and convincing you to make another poor decision, is so common that it has a name… the “sunk cost fallacy.”
You see it all the time when people go to sell a house, a car, a stock or any asset. One of the first things they do is compare the proposed sale price to what they paid for the asset. While, of course, there are some implications for taxes, the price you paid for an asset has nothing to do with what it is worth today. “If I can just get back what I paid for this” is a perfect example of the sunk cost fallacy at work. You should sell the asset at today’s fair price if you have better uses for the proceeds. Period. It does not matter what you paid for it. The buyer doesn’t care, and the price today wasn’t determined based on what you paid years ago.
We also see this in sticking to a budget, both in finance as well as in calories. We talked last month about how we all deviate from the best made plans from time to time. So, you overspent for the holidays, or you had far too many cinnamon roll snickerdoodles (my personal favorite Ann Michael Maye recipe). What influence does that have on your choices today? These are all in the past and don’t define what you can and should do today – they are all sunk costs.
Learn to identify sunk costs. Fight the temptation to let yesterday’s decisions define what’s right today. Take Dean Smith’s advice. And be like Christian Gonzalez in the 4th quarter – an even better version of you!
Brad Briner was elected North Carolina Treasurer in 2024 after working as the co-chief investment officer for Willett Advisors and has held positions at Morgan Creek Capital, the UNC Management Company, ArcLight Capital and Goldman Sachs. He started writing “Bottom Line with Brad” as a way to educate North Carolinians on complicated financial matters in the Department of State Treasurer’s monthly “Finance Fridays” newsletter. The column is published in partnership with Chapelboro and is not a sponsored series.
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