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The Sunk Cost Fallacy: Why We Keep Throwing Good Money After Bad

Updated: Jun 26, 2023

The sunk cost fallacy is a common cognitive bias that affects how we make decisions. It occurs when we invest time, money, or resources into something and then continue to invest more in it even when it no longer makes sense to do so. We feel like we've already invested too much to just walk away, so we keep going even when it's clear that we should stop.

For example, imagine you've bought tickets to a concert that you were really excited about, but on the day of the concert, it's raining heavily. You know that going to the concert means you'll get soaked, but you don't want to waste the money you've already spent on the tickets, so you decide to go anyway. This is an example of the sunk cost fallacy – you're continuing to invest in something (going to the concert) even though the cost (getting wet and potentially getting sick) outweighs the benefits (enjoying the concert).

The sunk cost fallacy can also manifest in business decisions. A company may continue to invest in a failing project because they've already sunk a lot of money into it, even if it's clear that the project isn't going to succeed. They may also continue to employ someone who isn't performing well simply because they've invested time and resources into training them.

So why do we fall victim to the sunk cost fallacy? One reason is that we feel like we're losing something if we walk away from a sunk cost. We may also feel embarrassed or foolish for having invested so much in something that ultimately didn't work out. Additionally, we tend to be loss-averse – we don't like losing what we've already gained, even if it doesn't make sense to keep going.

So how can we avoid falling prey to the sunk cost fallacy? Here are a few tips:

  1. Recognize when you're experiencing the sunk cost fallacy. Being aware of the bias is the first step in avoiding it.

  2. Focus on the future. When making a decision, consider only the costs and benefits going forward. Don't factor in what you've already invested.

  3. Consider the opportunity cost. If you continue to invest in something that isn't working out, you're missing out on other opportunities that could be more profitable or fulfilling.

  4. Get an outside perspective. Sometimes it's helpful to get an objective opinion from someone who isn't emotionally invested in the decision.

In conclusion, the sunk cost fallacy can be a difficult bias to overcome, but being aware of it and taking steps to avoid it can help us make better decisions. By focusing on the future and considering the opportunity cost, we can avoid getting trapped in situations where the cost outweighs the benefits.

If you've ever found yourself trapped in a situation where you're investing more time, money, or resources into something that just isn't working out, you may be falling victim to the sunk cost fallacy. But recognizing this cognitive bias is just the first step – to truly improve your thinking and decision-making skills, consider enrolling in our course on Seeing Clearly: Overcoming Your Brain's Betrayal.

This comprehensive course will teach you how to recognize and overcome a wide variety of cognitive biases, including the sunk cost fallacy, in a way that is accessible to non-experts. By learning to see through the fog of bias and make more rational decisions, you'll be able to achieve greater success in all aspects of your life. Enroll now for free and take the first step towards a clearer, more objective way of thinking.


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