Sunk Cost Fallacy
The sunk cost fallacy is the tendency to continue a course of action because of past investments (time, money, effort) that cannot be recovered, even when abandoning it would be more rational. It leads to irrational decision-making where individuals throw good money after bad to justify prior losses.
THE IDEA
Sunk Costs
Mark bought a $10 movie ticket a week ago. He is now sick and wants to rest, but decides to attend because he feels staying home would waste the money.
A sunk cost has already been paid and cannot be recovered. If the ticket is non-refundable, attending will not bring that money back. Mark’s decision should turn on the remaining benefits and costs of going, including how much he expects to enjoy the film and how he feels.
The sunk cost fallacy occurs when past investment becomes a reason to continue even though the future benefits no longer justify the future costs. The same problem can arise with time and effort. Compare what happens from this point onward, including the value of switching to another option. A pros-and-cons list helps when it focuses on those future consequences.
When to use it
Deciding whether to keep attending a course or event that you no longer enjoy because you already paid fees.
Deciding whether to continue funding a failing business venture versus cutting losses.
Deciding whether to finish a book or movie you dislike after investing hours in it.
Deciding whether to stay in a relationship or job that no longer brings fulfillment due to the time already committed.
FROM THEORY TO EVERYDAY LIFE
In practice
Mark's Movie Ticket
Mark bought a $10 non-refundable movie ticket a week ago. Now he is sick and would prefer to rest. The money is gone whichever option he chooses, so it should not decide whether the remaining benefit of seeing the film is worth going.
A MOMENT TO REFLECT
Put it to work.
Think of a recent decision where you continued an activity or project primarily because of time or money already invested, even though continuing seemed harmful. What was the outcome?
How might you use a pros-and-cons list to override the sunk cost fallacy in a current decision?
What emotional factors (e.g., pride, fear of waste) make it difficult to ignore sunk costs?
CONTINUE THE CONVERSATION
Source texts
- The 25 Cognitive Biases Uncovering The Myth Of Rational Thinking (Charles Holm)