Before I dig deep into what the "Sunk Cost Fallacy" is, let me recall my personal story about it. On one Sunday, I went out to have brunch with my friend. At the restaurant, we browsed through the menu and decided to order a pizza and truffle gnocchi to share. Fun fact: we both had never tried the truffle gnocchi. However, we found the name atypical so we hesitantly ordered it. When the waiter placed it on our table, my friend gasped and whispered, "It looks like detergent foam." She read my mind because that was my first impression as well. Perhaps, the restaurant ruined the dish. To describe how it looked, it consisted of several slices of mushrooms and potatoes floating in a creamy and foamy cheese sauce. I tried to sound optimistic and acted like we hadn’t made bad decision, "Maybe it tastes good even though it doesn't look very appetising.". Long story short, we did not enjoy the food as it was too cheesy for our preference, but we gulped it down and finished it anyway. Why so? I think most people would have answered the same – because we did not want to waste the food and we paid for it. The answer pinpoints what the sunk cost fallacy is – the idea that we tend to carry on with an activity or go through commitments and events if we have already paid for them or invested our time in them. (Sunk Cost Fallacy (Definition + Examples), 2019)
Who knows? The chef perhaps wanted to test this fallacy out and purposely made an insipid dish to see whether we would try to finish it. He was probably in the kitchen grinning, "Ha! You both fell for it!" The truth is, we fall for the sunk cost fallacy frequently. Have you ever purchased a pricey outfit (because your friends hyped you up or the fitting room mirror deceitfully showed that you looked like a fashionista in that outfit) and tossed it to the back of the wardrobe for years? Perhaps, you do not feel like a fashionista in that outfit anymore or for whatever reasons. If you are obligated to keep it in your wardrobe even if you do not wear it, thinking "I spent a good amount of money on it. I'll probably find an occasion to wear it in the future.", you have fallen for the sunk cost fallacy. If you continue reading a boring book or sticking to a bad movie at the theatre just because you have paid for the book or the movie ticket, you are again trapped in the sunk cost fallacy. After all, the money you spent on the outfit, the book or the movie ticket is already gone and cannot be retained. So why not find a better use for the outfit like giving it away or selling it (if possible)? Why waste time on the boring book or the movie when that time can be used in doing other useful things?
In more serious circumstances, the sunk cost fallacy does not only waste our time but it can lead us to more undesirable complications in life. For instance, we feel compelled to continue attending a class that we have enrolled in even when we discover that it does not fully benefit us or we no longer find any interest in the subject. If the reason why we are reluctant to drop the class is that we have paid for the fees or we have started the class already, we should endeavour to let go off that mindset. Another scenario is when we feel bound to fix an unhealthy relationship because we already invested so much time and emotion in it. Certainly, it is tough to cut off our emotional ties with a person or even materials but we should strive to let go of them when they are not only wasting our time but generally, doing us no good. Read on for the psychology behind such a mindset.
In terms of economics, a sunk cost is any historical cost that has already been paid and cannot be recovered. (How to Overcome the "Sunk Cost Fallacy" Mindset, 2020) Theoretically, sunk costs should not be considered when making business decisions. The future outcomes of a resource, an activity or an investment should rather be focused than its historical or past cost. Similarly, we need to stop committing to sunk costs in our lives to make more rational decisions. The sunk cost fallacy mindset is established when our emotional connection to things we have lost is stronger than to things we have gained – we desire to avoid losses before we seek gains. This also relates to our fear of being wasteful –wasting time, money or resources – and our sense of responsibility to complete something. The reason is that we are inclined to stand by our bad decisions and persist to invest in the events followed by them in an attempt to justify our behaviour and cover up our irrationality. (Sunk Cost, 2016)
So, how do we detach ourselves from the sunk costs? The first simple step is to be aware of the sunk cost fallacy whenever we make a decision. We can remind ourselves to not base our decisions on our past investments but to centre them on the desirability of the outcomes that our decisions will precede to. Secondly, weigh down the pros and cons. Maybe, writing down the list on a paper may help some of us. If the pros of carrying on with something are only to feel better about our decisions and to justify the emotional investment we have made, we should not go any further and terminate that activity. (Davidson, 2018) As overwhelming as they can be, we must endeavour to overcome our fear of failure and waste. Hence, practicing mindfulness such as meditating is a startup in eradicating our detrimental personal attachments. After all, life is only moving forward so we should live in the present and leave our sunk costs behind in the past.
Davidson, M. (2018, January 3). How the Sunk Cost Fallacy Makes You Act Stupid. Retrieved from Lifehack: https://www.lifehack.org/articles/communication/how-the-sunk-cost-fallacy-makes-you-act-stupid.html
Dobelli, R. (2013). The Art of Thinking Clearly. United Kingdom, United States: Sceptre (UK), Farrar, Straus and Giroux (USA).
How to Overcome the "Sunk Cost Fallacy" Mindset. (2020, January 14). Retrieved from Develop Good Habits: https://www.developgoodhabits.com/sunk-cost-fallacy/
Leahy, R. L. (2014, September 24). Letting Go of Sunk Costs. Retrieved from Psychology Today: https://www.psychologytoday.com/us/blog/anxiety-files/201409/letting-go-sunk-costs
Sunk Cost. (2016, January 21). Retrieved from Psychology : http://psychology.iresearchnet.com/social-psychology/decision-making/sunk-cost/
Sunk Cost Fallacy (Definition + Examples). (2019, November 22). Retrieved from Practical Psychology: https://practicalpie.com/sunk-cost-fallacy-definition-examples/