This behavior seems similar to that engaged in by gamblers who keep betting, despite heavy losses at the beginning of the night, figuring that if they stay in long enough they might be able to get their money back (and possibly more besides). In some respects, this behavior seems to be primarily motivated by the desire to have what you've already done "count for something". That is, the person is compelled to keep trying at whatever it is they're doing so as not to have to face the fact that they've wasted time and resources -- because if they "win" or succeed eventually, they can justify all prior attempts and failures as steps in the process toward eventual success.
I don't know what makes a person more or less likely to be vulnerable to engaging in that sort of behavior. But I think anyone wishing to avoid that sort of behavior would indeed do well to train themselves to learn to let go of a particular path or strategy. I'm guessing there's an element of "magical thinking" involved here, related to a fallacious sense that you accomplish things through repeating the same strategy over and over again (because eventually, "it's bound to work", when in fact, it isn't.)
Casey Serin, a 24-year-old web programmer with no prior experience in real estate, owes banks 2.2 million dollars after lying on mortgage applications in order to simultaneously buy eight different houses in different states. He took cash out of the mortgage (applied for larger amounts than the price of the house) and spent the money on living expenses and real-estate seminars. He was expecting the market to go up, it seems.
That’s not even the sad part. The sad part is that he still hasn’t given up. Casey Serin does not accept defeat. He refuses to declare bankruptcy, or get a job; he still thinks he can make it big in real estate. He went on spending money on seminars. He tried to take out a mortgage on a ninth house. He hasn’t failed, you see, he’s just had a learning experience.
That’s what happens when you refuse to lose hope.
While this behavior may seem to be merely stupid, it also puts me in mind of two Nobel-Prize-winning economists . . .
. . . namely Merton and Scholes of Long-Term Capital Management.
While LTCM raked in giant profits over its first three years, in 1998 the inefficiences that LTCM were exploiting had started to vanish—other people knew about the trick, so it stopped working.
LTCM refused to lose hope. Addicted to 40% annual returns, they borrowed more and more leverage to exploit tinier and tinier margins. When everything started to go wrong for LTCM, they had equity of $4.72 billion, leverage of $124.5 billion, and derivative positions of $1.25 trillion.
Every profession has a different way to be smart—different skills to learn and rules to follow. You might therefore think that the study of “rationality,” as a general discipline, wouldn’t have much to contribute to real-life success. And yet it seems to me that how to not be stupid has a great deal in common across professions. If you set out to teach someone how to not turn little mistakes into big mistakes, it’s nearly the same art whether in hedge funds or romance, and one of the keys is this: Be ready to admit you lost.