We’ve all been there before. You have invested too much in something but haven’t received any benefits. But the benefits seem right around the corner, you surely can’t give up now!
Or can you?
The sunk cost fallacy is when we continue to invest or spend money on something just because we have already invested a lot. It is a cognitive bias that dictates our decision-making process, and leads to irrational decisions.
It is also known as the Concorde Fallacy. It is a course of action that is influenced by past decisions. Put simply, the sunk cost fallacy is the idea that we are more likely to continue investing in something as long as we have invested so much in the past.
In this article, we’ll explore some common examples of the sunk cost fallacy so that you can recognize it when it crops up in your life, and avoid making costly mistakes.
Sunk Cost Fallacy Examples & Explanation
Here are some examples of the sunk cost fallacy.
The most common real-life example of the sunk cost fallacy comes from the story of Concorde Jet’s development.
The British and French governments invested in the development of the Concorde jet. However, in later stages, it became clear that the jet’s design was ineffective and won’t be financially viable.
Even so, the governments decided to continue investing and finish the project only because they had already invested too much.
They didn’t want to abandon it halfway, whatever the consequences. As expected, the project was a failure after completion.
- ‘I paid good money for this!’
How often have you heard someone say, “I paid good money for this!” when trying to justify keeping something they no longer want or use?
If you have, then you know first-hand how the sunk cost fallacy can influence our decision-making.
Just because you paid a lot for something doesn’t mean you have to keep it forever. If you’re no longer using or enjoying something, get rid of it! Otherwise, you’ve succumbed to the sunk cost fallacy.
- Let’s buy another coin for the arcade machine.
Sunk cost fallacy is the most common at arcade machines and toy-grabbing games.
You might have thought at festivals and entertainment centers, “let’s try one more time” when you failed to win a certain prize.
But you don’t have to keep going until you win. Chances are, you won’t grab that stuffed panda no matter how many times you try.
But you keep going because “I can’t let the previous three tries go to waste!” And hence, your decision becomes clouded by the sunk cost fallacy.
Sunk Cost Fallacy Examples from Daily Life
You have grasped the main concept of how the sunk cost fallacy works. Here are a few more examples to enhance your understanding.
- I can’t quit the job now. I have invested so many years in it.
- She can’t take a divorce now. They have already spent 20 years as a couple!
- I’ll eat a little more sweet. I have already eaten a bit, it won’t hurt if I eat some more.
- The US can’t leave Afghanistan now! We have already invested many years and billions of dollars into the operation.
- He continued to invest in the research and development of a new product, even though its design turned out to be unfeasible.
Can you think of more examples? You have surely encountered the sunk cost fallacy in many arguments and debates.
So let’s move on to how to avoid the sunk cost fallacy when making your own arguments.
How to Avoid the Sunk Cost Fallacy
There are a few things you can keep in mind next time you find yourself considering whether or not to stick with something:
- Just because you’ve invested time/money/effort in something doesn’t mean you have to see it through to the end.
- If you’re only sticking with something because you don’t want your past investment to go to waste, ask yourself if it’s worth your continued investment.
- If you don’t recommend that someone else continue down the same path, then you shouldn’t either.
- Focus on opportunity cost. That is, what else could you be doing with your time/money/effort if you weren’t investing it in this?
- Remember that no decision is ever permanent. If you decide later on down the road that you want to invest more time/money/effort into something, you can always do so. But once you’ve thrown in the towel, it will be tough (if not impossible) to get back what you’ve lost.
It is important to avoid the sunk cost fallacy, especially if you are going to make future business decisions. Moreover, it is also important to avoid it in daily life.
This blog introduced the sunk cost fallacy through several examples. So, always consider the future costs of your continued investment. And don’t fall into the sunk cost thinking and avoid further losses based on past spending.