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The Sunk-Cost Fallacy

Saloni Goyal
Extremely curious.
・2 min read

What is a fallacy?

A fallacy is a kind of error in reasoning. Logical fallacies are like landmines; easy to overlook until you find them the hard way.

landmine

The Sunk Cost Fallacy

sunk cost

Individuals commit the sunk cost fallacy when they continue a behavior or endeavor as a result of previously invested resources (time, money or effort) (Arkes & Blumer, 1985).

For example, ordering too much food at a restaurant and then to over-eat just to “get your money’s worth”.

Research suggests that rats, mice and humans are all sensitive to sunk costs after they have made the decision to pursue a reward (Sweis et al., 2018).

fallacy

Say you are doing a job, where it is becoming more and more clear to you everyday that this is not working for you but we figure that we have already spend many years preparing for this job and spend much time and money in getting the degree that we may as well stick with it. We don’t want all our time, money and effort to be wasted.

Here, the time, money, effort along with other things that have been spend pursuing the task so far is called the sunk cost. And the sunk cost fallacy is making a decision about your future actions not based on what outcome you think is going to be the best going forward but instead on a desire not to see your past investments go to waste.

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The sunk cost fallacy if often times what makes people stay in a marriage after it has become sour, or pursue an educational stream even though they don’t find it working for them.

It is also why the losing side in wars often fights long past the point at which the victory of the other side is certain, and only a matter of time. The sunk cost fallacy is also what sometimes leads startups to double their efforts when a competitor has taken monopoly over the market, instead of cutting their losses there and then.

dog

In my case, earlier when I wasn’t enjoying a book I was reading even after the first 100 pages or so and didn’t think it would get any better, I would still try and finish the book, because I had already spent time reading those 100 odd pages.

It is not easy to make an alternate decision when the sunk costs are very high because sunk cost in painful but at least having the sunk cost fallacy on my radar can help in maybe sometimes pushing past that and making the choice that would lead to a better outcome.

mistake

Thanks for reading!

Also posted here.

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