How to Avoid Being Bitten By the Sunk Cost Fallacy Bug!

I had a friend recommend a book to me the other day, I got about ½ through it and suddenly I thought to myself, why the hell am I reading this book?  This book really sucks!

However, I decided that since I had already read half of it, I might as well finish it.  Besides, I didn’t want to disappoint my friend, because surely, she would ask what I thought of it the next time I saw her.

Which brings us to today’s post.

Have you ever continued with a specific course of action, even though you knew it was wrong?

You continued because you wanted to save face, or to justify your decision in the first place, or because you had already invested time, money or emotion into it?

Well, my friend, you have been bitten by the sunk cost fallacy bug!

What is Sunk Cost Fallacy?

Sunk cost fallacy is simply our need to be consistent with what we have said or done in the past. In other words, continuing with a specific course (an action or a decision) even after it has been proven to be a negative path.

It is also sometimes known as an “escalation of commitment” or “commitment bias” – as you have already invested time and/or money that you cannot get back, you continue with the decision because it is consistent with what you have done. And in some cases, you have made it publicly known which just increases your commitment even more.

Robert Cialdini sums it up best in his book Influence: The Psychology of Persuasion: “Once we have made a choice or taken a stand, we will encounter personal and interpersonal pressures to behave consistently with that commitment. Those pressures will cause us to respond in ways that justify our earlier decision.”

In my personal example above, I continued reading the book, even though it was a waste of time and I was not interested in it.

Why Do We Engage in Sunk Cost Fallacy?

There are many reasons for sunk cost fallacy or commitment bias.

According to Cialdini, once we make up our mind on something we don’t have to think about it anymore, and our brains can go into autopilot so to speak.

He says, “We don’t have to sift through the blizzard of information we encounter every day to identify relevant facts; we don’t have to expend the mental energy to weigh the pros and cons; we don’t have to make any further tough decisions. Instead, all we must do when confronted with the issue is to turn on our consistency tape, whirr, and we know just what to believe, say, or do. We need only believe, say, or do whatever is consistent with our earlier decision.” ¹

Another reason he suggests is that sometimes going with what we already believe is less effort than taking action when we find out something counter to what we have committed to requires us to do more work.

Other Reasons…

 Some of the other reasons for sunk cost fallacy I found in my research were:

  Our ego takes over and we don’t want to be proven to be wrong, we want to justify our previous decisions or actions.

  We think if we just put more time and money into it, things will turn around.

  We feel a sense of ownership in the endeavor after committing, therefore we see it as being more valuable.

Why It Can Be Good

Being struck by the commitment bug is not all bad.  There are times when remaining true to our commitments is a good thing, such as when trying to achieve a goal or complete a project. Being committed means it is less likely we will jump ship prematurely.

In fact, studies have shown that we are less likely to give up on things if we write them down or verbally state them.  So, by stating publicly or writing down our goal to do something, we are more likely to follow through when adversity strikes.

Let’s Look at a Business Example of Sunk Cost Fallacy

The supersonic Concorde aircraft is a great example of sunk cost fallacy.  It began back in the early 60s in a project co-funded by the French and UK governments to the tune of over £1.3 billion.  The aim of the aircraft was to cater to wealthy customers who would be willing to pay a high price in exchange for its speed and luxurious service.

According to Peter Saxton, a consultant, and former British Airways Captain, the Concorde was “a stupendous example of a project that was kept alive for a whole raft of reasons, none of which seems to have included the serious intention of making a commercial return for investors. Those reasons…included maintaining technological expertise, providing employment, securing Britain’s entry into the European Common Market, and patriotism or prestige.”

Saxton surmises that the governments kept “throwing more good money after bad” because they “seemed prepared to pay the prestige premium no matter how high it rose.” ²

How About a Sports Example?

You see sunk cost fallacy in sports all the time.  A player who has been signed to a huge contract often plays ahead of someone who is playing better at the time. The reason? The team feels they have invested in the said ‘big money’ player and want to justify their previous decision.

A perfect example is Mark Sanchez, who was a QB with the NY Jets.  Even though he had two crappy seasons in a row, 2011 and 2012 (including the famous butt-fumble), the Jets decided to stick with him as they had invested a high draft pick on him as well as a crapload of money and a tremendous amount of energy and time.  If the Jets were using rational thought only, they probably would have cut ties with him after the 2012 season, but the aforementioned investments made their decision a complicated one.  Incidentally, he was hurt in the 3^rd game of the 2013 preseason, missed the entire season and was released in March of 2014.

Where can it happen to you?

There are many examples of how sunk cost fallacy can rear its ugly head to bite us in our butt.

Let’s check out at some examples:

  Relationships/dating

There are many times when you stick things out in a relationship due to either the investment you have already made in terms of time, finances etc. Or it may be due to you wanting to admit that you were wrong.

  Friendships

Same thing goes for friendships. Even though you realize someone may be a bad influence on you or be wasting your time, you stay in the friendship for a myriad of reasons.

  Movies

How many times have you gone to the movies only to realize that the movie sucked halfway through? Instead of leaving, you figure that you have paid for it so you might as well watch the rest of it.

  Reading a crappy book

Similarly, you are reading a book that you realize sucks a good way into it. But you figure you have read this far, might as well finish it off.

  How about the kama sutra class

that you are taking online… What at first seemed like a great way to spice up your sex life now looks like mission impossible as you don’t have near the flexibility for most of the positions they recommend. ..alas you continue the class until the end.

  Eating bad food you have already bought

Even though you know those donuts are bad for your waistline, you figure you paid for them, might as well scarf them down and deal with the guilt later!

  Giving employees great reviews

Here’s a work example, you have an employee that you have given a great performance review to. Next thing you know that employee, in hindsight, sucks. Instead of doing what you know you need to do, which is fire them, you keep them to justify your previous appraisal of them. Same goes with making a bad hiring decision, you put your reputation on the line in hiring them and don’t want to fire them and have egg on your face.  So the incompetent person remains employed.

  Cars

Instead of replacing that piece of crap clunker, you figure you just put new tires, a new starter and got the AC fixed, so you might as well keep it. Problem is, the transmission and brakes are about to go.  So instead of biting the bullet, you continue to throw good money after bad.

  Going out to eat

You have already waited 30 minutes, you might as well wait however much longer it is going to take.

  Staying at a crappy job longer than you should

You justify it by saying you have already invested so much time into it and the company. Plus, everyone has crappy jobs at some point and at least you have one.

How to avoid it?

Cialdini suggests listening to your stomach. Whenever his stomach tells him he “would be a sucker to comply with a request merely because doing so would be consistent with some prior commitment I was tricked into”¹ – he stops himself and he doesn’t deny the importance of being consistent with his prior commitment, he simply points out the foolishness of complying with his previous commitment”.

Other ways to avoid or deal with sunk cost fallacy are:

  Delegate the decision to someone else if possible – This way you separate the person who made the initial decision from the person who is evaluating if it is wise to continue. This is not always possible but for example, if you can delegate the decision to your significant other and live with their decision, it is a potential way around it.

  Instead of holding yourself accountable for the results, hold yourself accountable for the process itself: Focus on taking action and the not the end result, that way you won’t be bound by the result itself.   In the restaurant example above – before you go, set a time limit for say 30 minutes, if a table isn’t ready after 30 minutes you will leave.

  Don’t make it about yourself – You need to shift the focus away from yourself and your reputation and ego. Instead, focus on the big picture and implications to others and you will be able to make a more rational decision.

The Lesson I Learned

I personally learned a big lesson writing this blog post, I hope you learned something reading it!

The next time my friend’s 5-year-old daughter recommends a book, I will be sure to check it out.

However, if I suddenly realize it is not for me, as was the case with her recommendation of one of her favorites by the incomparable Dr. Seuss, I will simply tell myself the following:

I will not give in to that sunk cost fallacy scam!
I will not give in to it, Rick I Am

Until next time, why fit in when you were born to stand out!  And as always…PYMFP!
–Rick

Use It or Lose It:

To avoid or deal with sunk cost fallacy:

  Go with your gut.
  Delegate the evaluation and decision on whether to proceed to someone else.
  Hold yourself accountable for the process, not the results.
  Shift the focus away from you and your reputation.

When to Use It:

  When you find yourself trying to figure out whether to continue with something that you had previously committed to.  But be careful not to use this as an excuse to bail on a project or commitment because you are a lazy ass or for other reasons.

What Do You Think?

  Have you had situations in your life where the sunk cost fallacy has had negative consequences?  How have you justified behaviors that are less than optimal? Please share in the comments below!

 

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References

1Cialdini, R. B. (2007). Influence: The psychology of persuasion.

2 http://leepublish.typepad.com/strategicthinking/2015/03/sunk-cost-fallacy.html

https://www.psychologytoday.com/us/blog/give-and-take/201307/how-escape-bad-decisions

https://catalog.flatworldknowledge.com/bookhub/10113?e=fwk-122425-ch11_s02

http://www.cookandbynum.com/our-investment-approach/how-we-think/commitment-bias/

https://www.marketingsociety.com/the-gym/bias-spotlight-commitment-bias#TVBa0hwGeg4QAcPX.97

http://www.rationalwalk.com/?p=5773

https://en.wikipedia.org/wiki/Escalation_of_commitment

https://breakingmuscle.com/fitness/escalation-of-commitment-how-we-justify-bad-behavior

https://www.sicotests.com/psyarticle.asp?id=236

Nozick, Robert (1993). The Nature of Rationality. (Princeton: Princeton University Press).