The Sunk Cost Fallacy Keeps You From Cutting Your Losses

Have you ever bought tickets to a concert, but just didn't feel like going once the date came around? If the money you spent on the tickets led you to suck it up and go anyway, you fell for the sunk-cost fallacy. This fallacy occurs when you make a decision based not on what's best for the future, but on a desire not to waste the time, money, or emotional investment you've already paid.

This fallacy can cause all sorts of bad decisions, from individuals finishing books they don't enjoy to governments pouring money into investments with little return (in fact, this is sometimes called the Concorde fallacy after the ill-fated supersonic transport jet funded by France and Britain). This tendency toward irrational decisions has proven itself in psychological studies.

In one, subjects were told they bought a $100 ticket for a ski trip, then found a better ski trip elsewhere for $50 and bought that too. When they were told the two trips overlapped and they couldn't get a refund, more than half said they would go on the $100 trip even though the $50 one would be more fun. No matter what you've invested, it's already gone whether or not you continue with your current efforts. Sunk costs can be painful, making it hard to admit when it's time to move on, but it's important to focus on what's better for the future than what you've done in the past. 

Julia Galef: The Sunk Costs Fallacy

Key Facts In This Video

  1. The sunk cost fallacy applies when you stay in an unfulfilling career because of how much time you've already put into it. 00:38

  2. The sunk cost fallacy means making a choice based on a desire not to see your past investment go to waste rather than based on the best outcome for your future. 01:15

  3. Sunk costs are painful, so it may take time to admit to yourself that there's no reason to stick to something you've been working on for a long time. 02:21

Written by Ashley Hamer July 28, 2016

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