“We’re either on the verge of hitting it big or going under.”
That’s how I updated my family several years in a row while working for a start-up. They reminded me that I said the same thing last year. Without a doubt, it was a roller coaster and I learned a lot — more what not to do than what to do. There were many times I considered walking away, not sure that it was going to turn into something. But what if it did?
This is the lottery ticket effect. We can illustrate this with a thought experiment: go out and buy a $1 scratch ticket and then throw it away without scratching any of it off. It’s hard, but not because it costs $1, but because it might represent way more than that, even though the chance is slim. Suppose instead of throwing it away, I offer to buy it from you. How much would you sell it to me for? What if it was a lotto ticket possibly worth millions?
A study demonstrated exactly this difficulty, which showed that we irrationally avoid the possibility of regret. In the study, the authors gave people a raffle ticket that could win some small prize and then asked them if they would be willing to switch their ticket with someone elses. They were not, even if they were given incentive to do so. There are several cognitive biases going on here, but we know how we would feel if we made a decision that caused us to give up the winning ticket.
Regret changes how we act and the fear of regret is huge. This is one of the reasons taking no action feels good to us. Not acting feels like not making a decision and as a result, it feels easier not to regret the outcome. But when we simulate the future regret, why don’t we instead spend some time thinking about what if making the switch results in us winning.
After eight years, we finally sold the company – not for the amount any of us hoped, but it was an exit. A lot like getting a scratch ticket that lets you get a free ticket. The last year was the roughest as many people left, but even during that time, it felt like the company could go either way.
All startups exhibit this feeling and many that became successful had times where it looked very bleak. At the same time, we should recognize that the lottery ticket effect clouds our judgement and sometimes it’s better to exchange up then to ride it to the bitter end.
Photo Credit: Robert S. Donovan