The dangers of the Sunk Cost Fallacy

The sunk cost fallacy is a cognitive bias that can lead to irrational decision-making. The fallacy is a mistake in which a person will continue an endeavor as it becomes increasingly worse, solely because they have already invested time or money on it. The 'sunk costs' have already been incurred and cannot be recovered. These costs can include money, time, effort, or attention.

In business, the sunk cost fallacy can lead to the over-investment of resources in a failing project. It can also lead to the refusal to abandon the losing project because the costs of doing so have already been incurred. The sunk cost fallacy is associated with the commitment bias, where we insist or irrationally support our past decisions despite new evidence suggesting that it isn’t the best course of action.

This bias can also be harmful in personal relationships. For example, it can lead someone to stay in an abusive relationship, because the emotional investment in the relationship has already been made.

Some experts believe that this bias can lead to poor government actions as well. For example, some experts think that prolonged military engagements may be motivated by the sunk cost fallacy based on past expenditures with no real bearing on the present or future. The continued investment of resources may cause politicians to want to continue the engagements, even though they are no longer effective or necessary.

Supposedly, people make their decisions based on possible future outcomes, but this cognitive bias causes them to make choices based on past outcomes, which are no longer relevant.

Here are some ways to determine if you have fallen prey to this bias, and how to right the course:

Identify the sunk cost fallacy in your thinking:

-Are you continuing with a course of action just because you have invested so much time or money into it?

- Are you continuing with a course of action just because you are trying to not "lose face" if you stop now, or it fails?

- Are you continuing a relationship or approach to a relationship, because of the time and effort already invested - even though it's going poorly?

Identify an alternative course of action:

-Would your decision be different if there were no sunk costs associated with the original decision?

-If so, what would your new decision be?

-Can you eliminate or reduce the sunk costs so that they are no longer a factor in your decision?

Act on your new decision:

-If your revised decision is to stop the current course of action - do so immediately.

-If your revised decision is to continue the previously started course of action, but with a new approach - do so immediately.

Abandonment due to sunk costs is not failure, it's simply the abandonment of failure.

In conclusion, you should not continue with a course of action just because you have invested so much time or money into it. You should only be choosing to move forward based on what is likely to happen in the future, not just on what you have "invested" in the past, be it money, time, or attention.