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How the Sunk Cost Fallacy Makes You Act Stupid
Do you think you make smart, rational decisions most of the time?
Chances are good that even if you pride yourself on being rational most of the time, you still occasionally fall for the sunk cost fallacy.
What is this fallacy?
In economics, a sunk cost is any past cost that has already been paid and cannot be recovered. For example, a business may have invested a million dollars into new hardware. This money is now gone and cannot be recovered, so it shouldn’t figure into the business’s decision making process.
Or, let’s say you buy tickets to a concert. On the day of the event, you catch a cold. Even though you are sick, you decide to go to the concert because otherwise “you would have wasted your money”.
Boom! You just fell for the sunk cost fallacy.
Sure, you spent the money already. But you can’t get it back. If you aren’t going to have a good time at the concert, you only make your life worse by going.
How Often Do You Fall Into The Sunk Cost Fallacy Trap?
Unfortunately, an awful lot.
If you take a moment, you can probably think of all sorts of situations where you make irrational decisions because of the sunk cost fallacy.
To help you see how common this is, here are a few examples.
1. “I might as well keep eating because I already bought the food.”
I do this one all the time. If I go to a restaurant and become full after eating most but not all of my food, I feel compelled to eat the rest so that it isn’t “wasted”.
But in reality, nobody else will eat that food after me. It’s not getting recycled or given to poor people. It’s just thrown out.
So if I feel uncomfortable, I shouldn’t eat the food. It’s a sunk cost, and I only lose by gorging myself further.
2. “I might as well keep watching this terrible movie because I’ve watched an hour of it already.”
Or reading a terrible book that you are 100 pages into, or continuing a T.V. series on Netflix that has gone downhill, etc.
It doesn’t matter that you’ve already invested time into whatever media you are consuming. If you don’t like the movie, you can walk out of it.
I once made the mistake of staying in the theater during Dinner For Schmucks despite quickly realizing how terrible it was. It never got better, and I wasted even more of my time by staying.
3. “I might as well keep going to a bad/useless class that I paid for.”
If you join a club or take a class to learn a new skill, you might feel compelled to continue even if you don’t enjoy it.
After all, you paid the $100 entry fee and you’ve gone to 3 of the 8 sessions, so you might as well finish, right?
Of course not. If you don’t feel you are getting anything out of it, bail. Write off the money and the time you spent, and save yourself from the other five classes. Don’t waste any more of your time.
4. “I might as well continue dating someone bad for me because I’ve already invested so much in them.”
This is unfortunately all too common.
If you put a lot of emotional investment into a relationship, it can be very challenging to break it off. This can be true of any relationship, not just romantic ones. Perhaps one of your good friends is no longer a positive influence on you. Years of emotional investment makes it very uncomfortable to cut your ties, but you might have to.
Well, How Do I Free Myself?
We fall victim to the sunk cost fallacy because we are emotionally invested in whatever money, time, or any other resource we have committed in the past. The most important step to freeing yourself from making poor decisions based on sunk costs is to recognize the logical fallacy. Simply being aware of it will help you tremendously in making more rational decisions in the future.
By reading this article, you’ve already taken that huge first step.
But when that isn’t enough, I suggest you write out a pros and cons list. If the only pro of continuing to do something is to feel better about the emotional investment you’ve made, clearly you should go in the other direction.
Despite how common this fallacy is, you can see through it fairly easily most of the time. Don’t let it make you act stupidly.
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