The low down on the sunk cost fallacy

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Evolution / Myths / Psychology

Waiting in line at the grocery, you hesitate to move to another counter when it opens up. Even though you’re not looking forward to seeing it, you head to a movie you’ve already paid for. You stay in a career or relationship that no longer ‘sparks joy’. Tara Bautista asks why we cling on when we should let go.

Why do we choose to stay on board? Photo by Jack Blackeye on Unsplash.

Going down with the ship

Humans are weird creatures. We prize our supposedly unrivalled ability to tackle problems and come to decisions through logic and rationale. Yet we often fall prey to logical fallacies.

A common psychological trap you’ve probably fallen into is the sunk cost fallacy. It’s also known as the Concorde fallacy.

The sunk cost fallacy is when we continue with an endeavour even though it makes us unhappy or worse off because of the time, money, and effort – i.e. the ‘sunk costs’ – we’ve already invested in it.

In other words, it’s every situation in which you’ve ever thought: “But I’ve already come so far…”

The more you’ve invested, the more you’re likely to stick with it. In a study of US basketball drafts, higher paid draft picks were given more play time than lower paid ones even if their performances weren’t up to par.

Interestingly, one study showed the sunk costs we honour don’t even have to be real or even your own. In an imaginary situation where people were told they were accidentally booked in to two trips, one to Cancun ($800 in value) and the other to Montreal ($200), people were more likely to choose to go to Cancun even if they preferred Montreal.

In another scenario, people were told to imagine they felt full but hadn’t finished eating cake at a party. More often than not, they would push to finish it if they were told the cake had been bought from an expensive and faraway bakery.

But why?

Plenty of researchers have proposed explanations for this counterproductive behaviour.

One is simply that we don’t like to be wrong. There’s a mental disconnect between the effort we put in and the lower than expected return on our investment. As a result, we exaggerate the benefits to justify the cost.

For example, there’s a greater chance you’ll give five-star ratings for videos of kittens, dancing and bike crashes the longer you’ve spent waiting for them to load.

We also want to convince ourselves and others that we’re not wasteful or ‘quitters’.

We still go ahead with the sinking ship despite feeling bad about it. One study goes so far as to say that the negative feelings we have about our sunk costs actually drives the behaviour. The researchers found the likelihood of people sticking to their guns was predicted by how bad they felt immediately after making a decision about sunk costs.

We may also fear the regret we might feel by withdrawing our commitment.

Some researchers propose there’s an evolutionary advantage to whatever mechanism is driving the phenomenon since mice and rats also exhibit the behaviour. They too experience ‘regret’ about sunk costs and show reluctance to quit lining up for food the longer they’ve waited.

Looking to the future to avoid getting snagged

The thing is, thinking about sunk costs is being caught up with the past when we should be focusing on present actions and potential gains from them.

Economic theory suggests that “…decisions should only be guided by future gains and losses, as prior costs do not affect the objective outcomes of current decisions.”

We ‘feel’ our way into the trap, but we can think ourselves out of it.

Reflecting when we’re not mentally overwhelmed helps us to avoid the sunk cost fallacy. People who justify their decisions feel less bad about poor investments and are less susceptible to the sunk cost fallacy than people who don’t justify them.

And speaking of thinking (and perhaps overthinking): people high in neuroticism are less prone to the sunk cost fallacy. This is because they tend to avoid stressful situations by engaging in tasks other than the one responsible for the stress. On the other hand, people low in neuroticism experience less stress, resulting in less incentive to change their behaviour and greater chance of continuing with bad investments.

When things go wrong, Western society has a tendency towards action – to do something rather than not. In fact, we have a tendency to commit even more resources the more desperate the situation is.

But researchers found we can prevent this by reframing how we think. We are less likely to commit more resources to a failing venture if we are taught to think of committing more resources as ‘inaction’ and not choosing to commit is an ‘action’ of itself.

I don’t know about you but changing the way I think about a sinking ship isn’t such a titanic effort when I imagine doing nothing and being buried in the heart of the ocean!

 

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2 Comments

  1. Ah, you got me on the queue jumping at supermarkets – it’s always been a dilemma on what to do and all for what is possibly an extra minute of time in some instances, so these days I take away the thinking pain and always switch…Why switch instead of stay? Ever since I heard about the Monty Hall problem (https://en.wikipedia.org/wiki/Monty_Hall_problem), I (incorrectly) think that my chances are better when switching supermarket queues (I know, no goats, no cars in this scenario), however, I think in my mind that a switching approach increases my probability of winning.

    • I find it so hard to get my head around the Monty Hall problem Marti!! And although I agree with you (I’m also not entirely convinced switching is the best plan at the supermarket), if it reduces frustration, why not. Maybe it would be more fun if there were goats to watch 😂

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