Have you ever gone to a concert or show simply because you bought the tickets and didn’t want to “waste” them by not attending?
The sunk cost fallacy insists it is unwise to cut one’s losses and try a different outcome. It keeps people in bad jobs, bad relationships, and working on bad projects for years. This is the conundrum every world leader faces when their country is at war – should we cut our losses and withdraw or continue to throw resources at a losing effort?
In Thinking, Fast and Slow, psychologist and author Daniel Kahneman defines the sunk cost fallacy as “the decision to invest additional resources in a losing account, when better investments are available”.
Whatever you’ve committed in the past to an effort, that cost does not influence its future potential, and it shouldn’t determine the decisions you make going forward. Sometimes, choosing to do something else is the wisest and most profitable decision one can make.
Another common example is poker. Staying in a hand you can’t win simply because you’ve already spent so much time on the game isn’t a winning strategy. People do this in relationships, as well; “I know things have been getting worse, but we’ve been together twelve years. I might as well continue.” Having spent a long time together doesn’t necessarily mean continuing together is the best option.
We do this in even smaller and everyday choices, too. We continue to sit through the entire two hour movie, even though we lost interest in the first half. We struggle to retain interest in a book – “I’ve read the first hundred pages. I’ll just trudge through and try it make it to the end, to justify the time I already spent reading it.” We don’t want that time to have been “wasted.”
Clearly, we’d be better off just closing the book or turning off the movie. If the book is no longer serving a purpose, be done with it. You can’t get that time back, but you can keep yourself from spending more time on miserable choices. We can choose not to spend even more time on a losing strategy, putting it to use elsewhere.
If it’s unlikely to succeed, why do we do this?
As researchers from one study observed, “One reason why people may wish to throw good money after bad is that to stop investing would constitute an admission that the prior money was wasted.” The social consequences we anticipate have a great influence on our decisions. We don’t want to appear to mishandle our money. We don’t want to admit the decision was wrong or flawed in the first place.
“What about perseverance?”
Perseverance is a trait widely admired and for good reason – the willingness to endure temporal pain for a lasting reward is admirable. However, there is a stark contrast between the thinking driving the sunk cost fallacy and perseverance. Perseverance is continuing on to a particular goal or destination despite obstacles, and is forward looking. The sunk-cost fallacy looks to past decisions to determine future choices. It’s choosing a losing option over other, more positive options based entirely on past actions. The individual committing the sunk cost fallacy is stuck looking backwards at what was.
How can we refrain from making this mistake?
Kahneman reminds us, “A rational decision maker is interested only in the future consequences of current investments.” Making good decisions is about finding the most reasonable plan of action and taking it. Gather pertinent information, make a plan, and take the first step. Kahneman also recommends asking if you’d make the same decision today had you not previously spent any time or money on the effort.
Don’t continue with a losing strategy simply because you started with it. Don’t continue down a bleak road simply because you’ve already taken steps down the path. Instead, take stock of the options currently available to you, regardless of where you’ve spent your time or money in the past. Take the time to make a better decision, and pivot to something better. There are always other paths to take.
Photo: Daniel Burka on Unsplash
