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How the Sunk Cost Fallacy Makes You Act Stupid

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.

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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”.

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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.

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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.

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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.

More by this author

Michael Davidson

Michael teaches English in Israel while blogging about how to live a happier and healthier life.

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Last Updated on September 18, 2020

13 Helping Points When Things Don’t Go Your Way

13 Helping Points When Things Don’t Go Your Way

For the original article by Celestine: 13 Helping Points When Things Don’t Go Your Way

“We all have problems. The way we solve them is what makes us different.” ~Unknown

“It’s not stress that kills us, it is our reaction to it.” – Hans Selye

Have you ever experienced moments when things just don’t go your way? For example, losing your keys, accidentally spilling your drink, waking up late, missing your buses/trains, forgetting to bring your things, and so on?

You’re not alone. All of us, myself included, experience times when things don’t go as we expect.

Here is my guide on how to deal with daily setbacks.

1. Take a step back and evaluate

When something bad happens, take a step back and evaluate the situation. Some questions to ask yourself:

  1. What is the problem?
  2. Are you the only person facing this problem in the world today?
  3. How does this problem look like at an individual level? A national level? On a global scale?
  4. What’s the worst possible thing that can happen to you as a result of this?
  5. How is it going to impact your life in the next 1 year? 5 years? 10 years?

Doing this exercise is not to undermine the problem or disclaiming responsibility, but to consider different perspectives, so you can adopt the best approach for it. Most problems we encounter daily may seem like huge issues when they crop up, but most, if not all, don’t have much impact in our life beyond that day.

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2. Vent if you have to, but don’t linger on the problem

If you feel very frustrated and need to let off some steam, go ahead and do that. Talk to a friend, complain, crib about it, or scream at the top of your lungs if it makes you happy.

At the same time, don’t get caught up with venting. While venting may temporarily relieve yourself, it’s not going to solve the problem ultimately. You don’t want to be an energy vampire.

Vent if there’s a need to, but do it for 15 to 20 minutes. Then move on.

3. Realize there are others out there facing this too

Even though the situation may be frustrating, you’re not alone. Remember there are almost 7 billion people in the world today, and chances are that other people have faced the same thing before too. Knowing it’s not just you helps you to get out of a self-victimizing mindset.

4. Process your thoughts/emotions

Process your thoughts/emotions with any of the four methods:

  1. Journal. Write your unhappiness in a private diary or in your blog. It doesn’t have to be formal at all – it can be a brain dump on rough paper or new word document. Delete after you are done.
  2. Audio taping. Record yourself as you talk out what’s on your mind. Tools include tape recorder, your PC (Audacity is a freeware for recording/editing audio) and your mobile (most mobiles today have audio recording functions). You can even use your voice mail for this. Just talking helps you to gain awareness of your emotions. After recording, play back and listen to what you said. You might find it quite revealing.
  3. Meditation. At its simplest form, meditation is just sitting/lying still and observing your reality as it is – including your thoughts and emotions. Some think that it involves some complex mambo-jumbo, but it doesn’t.
  4. Talking to someone. Talking about it with someone helps you work through the issue. It also gets you an alternate viewpoint and consider it from a different angle.

5. Acknowledge your thoughts

Don’t resist your thoughts, but acknowledge them. This includes both positive and negative thoughts.

By acknowledging, I mean recognizing these thoughts exist. So if say, you have a thought that says, “Wow, I’m so stupid!”, acknowledge that. If you have a thought that says, “I can’t believe this is happening to me again”, acknowledge that as well.

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Know that acknowledging the thoughts doesn’t mean you agree with them. It’s simply recognizing the existence of said thoughts so that you can stop resisting yourself and focus on the situation on hand.

6. Give yourself a break

If you’re very stressed out by the situation, and the problem is not time sensitive, then give yourself a break. Take a walk, listen to some music, watch a movie, or get some sleep. When you’re done, you should feel a lot more revitalized to deal with the situation.

7. Uncover what you’re really upset about

A lot of times, the anger we feel isn’t about the world. You may start off feeling angry at someone or something, but at the depth of it, it’s anger toward yourself.

Uncover the root of your anger. I have written a five part anger management series on how to permanently overcome anger.

After that, ask yourself: How can you improve the situation? Go to Step #9, where you define your actionable steps. Our anger comes from not having control on the situation. Sitting there and feeling infuriated is not going to change the situation. The more action we take, the more we will regain control over the situation, the better we will feel.

8. See this as an obstacle to be overcome

As Helen Keller once said,

“Character cannot be developed in ease and quiet. Only through experiences of trial and suffering can the soul be strengthened, vision cleared, ambition inspired and success achieved.”

Whatever you’re facing right now, see it as an obstacle to be overcome. In every worthy endeavor, there’ll always be countless obstacles that emerge along the way. These obstacles are what separate the people who make it, and those who don’t. If you’re able to push through and overcome them, you’ll emerge a stronger person than before. It’ll be harder for anything to get you down in the future.

9. Analyze the situation – Focus on actionable steps

In every setback, there are going to be things that can’t be reversed since they have already occurred. You want to focus on things that can still be changed (salvageable) vs. things that have already happened and can’t be changed. The only time the situation changes is when you take steps to improve it. Rather than cry over spilt milk, work through your situation:

  1. What’s the situation?
  2. What’s stressing you about this situation?
  3. What are the next steps that’ll help you resolve them?
  4. Take action on your next steps!

After you have identified your next steps, act on them. The key here is to focus on the actionable steps, not the inactionable steps. It’s about regaining control over the situation through direct action.

10. Identify how it occurred (so it won’t occur again next time)

A lot of times we react to our problems. The problem occurs, and we try to make the best out of what has happened within the context. While developing a healthy coping mechanism is important (which is what the other helping points are on), it’s also equally important, if not more, to understand how the problem arose. This way, you can work on preventing it from taking place next time, vs. dealing reactively with it.

Most of us probably think the problem is outside of our control, but reality is most of the times it’s fully preventable. It’s just a matter of how much responsibility you take over the problem.

For example, for someone who can’t get a cab for work in the morning, he/she may see the problem as a lack of cabs in the country, or bad luck. However, if you trace to the root of the problem, it’s probably more to do with (a) Having unrealistic expectations of the length of time to get a cab. He/she should budget more time for waiting for a cab next time. (b) Oversleeping, because he/she was too tired from working late the previous day. He/she should allocate enough time for rest next time. He/she should also pick up better time management skills, so as to finish work in lesser time.

11. Realize the situation can be a lot worse

No matter how bad the situation is, it can always be much worse. A plus point vs. negative point analysis will help you realize that.

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12. Do your best, but don’t kill yourself over it

No matter how bad your situation may seem, do your best, but don’t kill yourself over it. Life is too beautiful to worry so much over daily issues. Take a step back (#1), give yourself a break if you need to (#6), and do what you can within your means (#9). Everything else will unfold accordingly. Worrying too much about the outcome isn’t going to change things or make your life any better.

13. Pick out the learning points from the encounter

There’s something to learn from every encounter. What have you learned from this situation? What lessons have you taken away?

After you identify your learning points, think about how you’re going to apply them moving forward. With this, you’ve clearly gained something from this encounter. You’ve walked away a stronger, wiser, better person, with more life lessons to draw from in the future.

Get the manifesto version of this article: [Manifesto] What To Do When Things Don’t Go Your Way

Featured photo credit: Alice Donovan Rouse via unsplash.com

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