Learn What the Sunk Cost Fallacy Is, Why We Fall Into It, and How to Avoid It: Sunk Cost Fallacy

 

What is the Sunk Cost Fallacy 

The sunk cost fallacy occurs when an individual continues an endeavor solely because they’ve already invested resources—such as time, money, or energy—even though abandoning it would be the more rational and efficient choice.

Why do we fall into the Sunk Cost Fallacy Trap? 

We fall into the sunk cost fallacy because our decisions are driven more by emotion than logic.

• Fear of Loss: We are more scared of losses, than potential gains of walking away. 
• Failure: It is hard to admit that we might have failed. We might not want to face the fact that we were unwise previously. 
• Optimism Bias:  We become overly optimistic that things might turn around. 
• Emotional Attachment: The more effort we invest into something, the more we become emotionally attached.

Famous Examples Sunk Cost Fallacy

Concorde Project

The most famous example of a sunk cost was the Concorde Project. The Concorde was a joint project by the British and French governments to develop a supersonic jet. The Concorde flew commercially from 1976 to 2003 and was never profitable. Why did both governments continue funding this project? Simply, they were driven by ego (national pride and unwilling to admit failure), fear (they had already invested vast sums of money), momentum (the project was already up and running) and optimism (hoping things might turn around). 

Personal 

Have you ever kept reading a book or watching a TV show, even though you've lost interested? This is the sunk cost fallacy at work. You continue to read/watch purely because you've "made it this far". The time already spent can not be reclaimed, but you can use your future time on activities that add value. 

Monkey Trap

The monkey trap is a story to illustrate that our unwillingness to let go of something can lead to self imprisonment. The monkey trap is where hunters place food into a trap with an opening wide enough for the monkey to slip its hand in to get the food, but is unable to remove a clenched hand full of food. If the monkey is unwilling to let go, then it is trapped. 

Identifying and Overcoming Sunk Costs 

To identify if  you are currently invested into a sunk cost endeavor ask yourself the following questions:  

• "Would I take this course of action if I was to start again?" 
• "Would I invest into this again (time/money/energy) if I knew this is where I would be now?" 

 To overcome sunk costs you must focus on the future. Turn your focus to future endeavor's which are a better investment of your time, money and effort. 

Conclusion

Recognizing the sunk cost fallacy is about shifting your perspective from the past to the future. Do not be imprisoned by past investments. 

Ask yourself "Am I that monkey? Am I unwilling to let go and continue to be self-imprisoned?"