Sunk Cost fallacy

Sunk Cost fallacy

Have you ever stayed in a project, business, or a relationship purely because you had put in too much time, energy, money or something else? And the thought of quitting might have come to you, but you always brushed it off with another thought: “I have gone too deep to quit now?”

If the thought that “I have invested so much and I can’t back out now” becomes the only reason to keep going on the same track, that is SUNK COST FALLACY, my friend.

In business terms, sunk cost, as the name says, refers to a price that has been paid and can not be recovered. And the cherry on top is that our psychological drive to recover this invested amount forces us to continue making an investment into the already bad investment.

Yes, like, putting ten more candies into a jar with a big hole, only because we have already put in five.

This is not only limited to business, and it can be applied to other important things like career, relationships, and as trivial things as movies and video games. Anywhere, where invested resources stop you from calling it quits.

This sunk cost fallacy gives us an illusion of pulling gain from already lost things of the past, and it comes with heavy guilt.

Let’s understand with an example. Imagine purchasing tickets to two vacations.

One to France because it was available at a good price, say, 2000 bucks, and later, one to a place you have always wanted to go, Japan, at half the price of before, 1000 bucks only, which sounded a very sweet deal to you.

But unfortunately, you realised that the dates of these vacations clashed and you could only go to one of them.

So, how do you choose which place to go?

Will your decision be based on how much the ticket cost?

Or will you focus it on the future, like which place you will enjoy the most? (Whisper yell, JAPAN!)

When looking at this situation, our minds feel it is reasonable to go to France since more money is invested in it, and by going there, you will only face a loss of 1000 bucks from the ticket bought to Japan.

But if you go to Japan, you might enjoy it more since you always wanted to see Sakura trees, but you will face a loss of 2000 whole bucks, man!

And our lovely mind, as it works, tries with all its might to convince us that going to France is a better option because more money is invested.

But it is important to know that the total money invested in these trips, the whole 3000 bucks, is already gone. It can not be recovered by going on either trip, or at all. You will not get back your 2000 Bucks by going to France or 1000 Bucks by going to Japan.

And it is best to think about the future and choose the place you have always wanted to go, Japan. Why? Because you will enjoy that trip more than France.

This also applies to relationships. If it has become toxic, or the behaviour of your partner has changed and you no longer like them as much as you did before.

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And if the only reason you are not walking away is that too much time has been invested, and now it is just too late then this will only make things worse.

You will only continue to get bitter and more bitter, day by day, until one day the thread of your patience finally snaps and you find yourself walking out of the door.

This list goes on and on. Be it a career, some skill you are learning or have invested too much time on, or a movie you bought a ticket for and then, ten minutes in, you know you will not enjoy it. It is best to quit, even though it is as difficult as it is.

Why?

Because it just comes down to that decades old mundane wisdom, the best time to plant a tree was ten years ago, and the second best time is today.

The past is gone; we only have the future in our hands.

In the sunk cost fallacy, we let our past decisions influence our future decisions badly.

Our brains try to reason us to continue with whatever we are doing: career, relationship, or anything else, because of the past investment made. But when you think this through, you realize that if you quit, then you are not wasting the time, effort, and other resources invested, but saving the remaining time, effort, and money. Yes, the “Glass is half empty, but half full” kind of logic. Here are some reasons that cause the sunk cost fallacy for you to see if you find it relatable:

1. A strong emotional connection to lost invested things like time, effort, and money.
2. Desire to avoid wasting invested resources.
3. Ego and pride
4. The tendency to stick to a decision, knowing it is a bad one.
5. Being overly optimistic that it will just turn out fine.

From the previous Japan & France example, in a survey, when a situation about choosing one of the two vacations was given to a bunch of people, most of them chose to go to France and not Japan because the ticket to France cost more, but this decision just reduces future happiness.

Now that we have understood sunk cost fallacy so nicely. Let us talk about ways to overcome it:

1. Let go of the past and don’t dwell.

It hurts to let go of the time, energy, money, or anything else you had invested in whatever you were doing, but slowly try to accept a bad decision and let go.

1. Think about the present and the future

Try to think of other things you can invest your energy, money and time into. Things which will excite you.

If you are deep down into something only because you have invested too much effort to leave now. Maybe now is time to stop and reevaluate, and maybe to go on by keeping sunk cost fallacy in mind, or maybe it is time for you to just quit, let go, and look beyond.

As easy as it is said, I know, it is ten times more difficult to let go of something just like that. But hey, whatever it is, just remember that feeling stuck in sunk cost fallacy is very human, and you should not take it as a burden to your heart.