The Sunk Cost Fallacy

The sunk cost fallacy can end up wasting us months, years or even decades, not to mention many thousands of dollars.

For some, the price is even higher than that.

And do you want to know the really scary part? We all fall for it from time to time.

Now that’s precisely what happened to me in the early part of 2015.

I’d hired someone to do some work but the agreed deadlines were never met – there was always some excuse followed by the assurance that it would be done “over the weekend” or “by Friday”.

Only it never was.

Eventually, things came to a head, and when I received an e-mail saying “it would be a shame to pull the plug now – we’ve come so far”, I cringed.

Why? Because at that moment I realized that I’d fallen for the sunk cost fallacy hook, line and sinker.

So, what exactly is it and how can we avoid it?

Let’s find out.

What is the Sunk Cost Fallacy?

This is how Rolf Dobelli describes the sunk cost fallacy in his book, The Art of Thinking Clearly.

The sunk cost fallacy is most dangerous when we have invested a lot of time, energy, money, or love in something.

This investment becomes a reason to carry on, even if we are dealing with a lost cause.

Now that may sound a bit abstract and theoretical, so here’s a real-world example.

A buddy of mine took something like eight years to finish his PhD dissertation, even though the writing was on the wall after only two or three years.

It wasn’t looking good.

But he pushed on regardless and spent another five years trying to fix the unfixable, beating a dead horse and ending up in a downward spiral of frustration and negativity.

The reality is that guy was smart and capable enough to create and develop a multi-million dollar company within that same 5-year time scale.

Instead he got snared by the sunk cost fallacy and paid a heavy price.

Traffic Jam on Everest

OK, that may sound kind of extreme but the sunk cost fallacy is all around us, waiting to pounce when we least expect it.

It’s a major reason why governments continue to fight unwinnable wars and throw money at white-elephant projects that are billions over budget and years behind schedule.

It even seduces some folks into paying the ultimate price.

For example, the fee to climb Mount Everest is around $11,000 per person then, on top of that, there’s the time and money spent on equipment, training and preparation.

So there’s a pretty hefty up-front cost.

Now, towards the top of Everest there’s effectively a bottleneck and, with so many people wanting to hit the summit, traffic jams can occur.

Credit: Ralf Dujmovits

Credit: Ralf Dujmovits

This photograph actually shows people in the “death zone”, waiting for their once-in-a-lifetime chance to make it to the top.

And get this – some decide to push on even though they know they’ll never make it back down again.

To them, the sunk cost is worth paying for with their life, and Everest is littered with the bodies of people that felt the same way.

The sunk cost fallacy can be that dangerous.

Back in the Real World

Now you and I are unlikely to go to that extreme but the sunk cost fallacy is never far away.

It’s the reason why we:

• Stick with the same personal trainer even though we’ve had zero measurable results

• Continue to hold on to investments that are going nowhere 

• Keep grinding ourselves into the ground with those 4-minute fat-blast workouts that simply don’t work

• Persist with the same fad diet even though we haven’t shed a pound in weeks or maybe months

There are literally thousands of ways we can get sucked in and none of us is immune.

Why? Because as painful as the situation may be right now, it’s even more painful for us to admit that we made a mistake way back when we made the original decision.

After all, admitting a mistake is something most folks will do pretty much anything to avoid, right?

The $64,000 Question

So, now we know what the sunk cost fallacy is, how do we stop ourselves falling into it?

Well, these phrases should act like big, red warning flags that the sunk cost fallacy is waiting to pounce:

We’ve come so far…

We’ve invested so much time…

We’ve spent so much money…

We’ve put in so much effort…

Of course, this doesn’t mean we should quit when things get tough.

I’m not ashamed to admit that I wanted to throw in the towel many times while writing the Superfitdads book, How To Get Lean, Strong & Bulletproof.

But I stuck with it because I had total belief in the value of the project, and I’m glad that I did.

Ultimately, an easy way to see if you’ve fallen for the sunk cost fallacy is to think back to the original decision.

Based on what you know now, would you still have made the same choice back then?

If the answer is “no”, you might just have fallen hook, line and sinker for the sunk cost fallacy.

Now, don’t beat yourself up – it may be time to cut your losses and move on.

And as long as you take something positive from the experience it wasn’t a failure.

It just means you’ll be better prepared next time.

– Tim

Check out the Superfitdads book, How To Get Lean, Strong & Bulletproof here!

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Images:

Bigstock 

Ralf Dujmovits (used under license)

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