The Sunday Session:
'A one minute read to set you up for the week ahead'
The Sunk Cost Fallacy:
An Energy Sink Hole
Read Time : 1 minute
What is The Sunk Cost Fallacy?
The Sunk Cost Fallacy describes our inclination to follow through with or continue with an activity simply because we have already invested time, effort, money, or some combination of these three into it. Alarmingly, this inclination persists whether or not the current costs of the activity outweigh the benefits.
Who does it Affect?
No one is immune from The Sunk Cost Fallacy!
It occurs at all levels, from corporate and governmental entities, groups and teams, right down to the individual level:
Government projects, such as the Supersonic Transport Aircraft Committee’s attempt to build a supersonic airplane, known as The Concorde, were allowed to continue despite the realisation during the project that the financial gains of the plane, once in use, would not offset, and considerably so, the increasing costs and investments within the project.
All too often we see businesses and teams allowing managers and team players to continue in post, despite their negative impact on the group.
In our own lives, we have all finished that book that we didn’t enjoy, remained at that party that was no longer fun or stayed in that relationship that no longer served us.
In all of these situations our emotional responses of guilt, irresponsibility and wastefulness have superseded our rational thinking. Our desire to avoid the negative feelings of loss make us more likely to follow through with a decision that we have invested time, money or energy in, even if it is not in our best interests.
What is the Solution?
Simply being aware of The Sunk Cost Fallacy allows us to make better decisions - we are aware of the role our emotions play in decision making and can use this information to inform more rational thinking.
Being aware that, in economic terms, sunk costs are costs that have already been incurred and cannot be recovered, allows us to make decisions based on what is best for us at this particular time without the pull of previous decisions.
Question I am reflecting on:
Where do I lose time, money and energy to The Sunk Cost Fallacy?
What habits do I need to eliminate?
Have a great week,
David O’Hanlon