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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.

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Last Updated on February 13, 2019

10 Things Happy People Do Differently

10 Things Happy People Do Differently

Think being happy is something that happens as a result of luck, circumstance, having money, etc.? Think again.

Happiness is a mindset. And if you’re looking to improve your ability to find happiness, then check out these 10 things happy people do differently.

Happiness is not something ready made. It comes from your own actions. -Dalai Lama

1. Happy people find balance in their lives.

Folks who are happy have this in common: they’re content with what they have, and don’t waste a whole lot of time worrying and stressing over things they don’t. Unhappy people do the opposite: they spend too much time thinking about what they don’t have. Happy people lead balanced lives. This means they make time for all the things that are important to them, whether it’s family, friends, career, health, religion, etc.

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2. Happy people abide by the golden rule.

You know that saying you heard when you were a kid, “Do unto others as you would have them do to you.” Well, happy people truly embody this principle. They treat others with respect. They’re sensitive to the thoughts and feelings of other people. They’re compassionate. And they get treated this way (most of the time) in return.

3. Happy people don’t sweat the small stuff.

One of the biggest things happy people do differently compared to unhappy people is they let stuff go. Bad things happen to good people sometimes. Happy people realize this, are able to take things in stride, and move on. Unhappy people tend to dwell on minor inconveniences and issues, which can perpetuate feelings of sadness, guilt, resentment, greed, and anger.

4. Happy people take responsibility for their actions.

Happy people aren’t perfect, and they’re well aware of that. When they screw up, they admit it. They recognize their faults and work to improve on them. Unhappy people tend to blame others and always find an excuse why things aren’t going their way. Happy people, on the other hand, live by the mantra:

“There are two types of people in the world: those that do and those that make excuses why they don’t.”

5. Happy people surround themselves with other happy people.

happiness surrounding

    One defining characteristic of happy people is they tend to hang out with other happy people. Misery loves company, and unhappy people gravitate toward others who share their negative sentiments. If you’re struggling with a bout of sadness, depression, worry, or anger, spend more time with your happiest friends or family members. Chances are, you’ll find that their positive attitude rubs off on you.

    6. Happy people are honest with themselves and others.

    People who are happy often exhibit the virtues of honesty and trustworthiness. They would rather give you candid feedback, even when the truth hurts, and they expect the same in return. Happy people respect people who give them an honest opinion.

    7. Happy people show signs of happiness.

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    smile

      This one may sound obvious but it’s a key differentiator between happy and unhappy people. Think about your happiest friends. Chances are, the mental image you form is of them smiling, laughing, and appearing genuinely happy. On the flip side, those who aren’t happy tend to look the part. Their posture may be slouched and you may perceive a lack of confidence.

      8. Happy people are passionate.

      Another thing happy people have in common is their ability to find their passions in life and pursue those passions to the fullest. Happy people have found what they’re looking for, and they spend their time doing what they love.

      9. Happy people see challenges as opportunities.

      Folks who are happy accept challenges and use them as opportunities to learn and grow. They turn negatives into positives and make the best out of seemingly bad situations. They don’t dwell on things that are out of their control; rather, they seek solutions and creative ways of overcoming obstacles.

      10. Happy people live in the present.

      While unhappy people tend to dwell on the past and worry about the future, happy people live in the moment. They are grateful for “the now” and focus their efforts on living life to the fullest in the present. Their philosophy is:

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      There’s a reason it’s called “the present.” Because life is a gift.

      So if you’d like to bring a little more happiness into your life, think about the 10 principles above and how you can use them to make yourself better.

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