don’t sink into this trap! Understanding the sunk cost fallacy.
Every year, my husband’s work offers its employees tickets to the International Balloon Fiesta. If you’re unfamiliar, it’s a nine-day event in October where hot air balloonists and enthusiasts from all over the world convene in our city – Albuquerque, New Mexico. For weeks before and after, our beautiful blue skies are dotted with hot air balloons. It’s a pretty special time of the year.
Getting to the Balloon Fiesta is a notoriously difficult endeavor. You can ride a bike, take a shuttle, or bear the traffic and parking. With two small kids in tow, we chose to wait through traffic and park as close to an entrance as we could. As we were driving to the fiesta, we read an article saying you needed cash to pay for parking, so on our way, we stopped at an ATM and paid the $5.25 ATM fee to withdraw the $20 we needed for parking.
Forty-five minutes after leaving home, we finally arrived. With two half-asleep children in our arms, we walked to the entrance. We handed over our tickets, only to be told the tickets were not for the Balloon Fiesta but for some other unclear event which would require at least another hour of travel. Our options were to leave for home or buy the correct tickets to get in.
My husband’s take was that we ought to leave – we were attending because we thought we had free tickets, and we didn’t need to stay. I, on the other hand, reasoned that we already spent all the time packing up, driving, getting cash, paying to park, parking, and shlepping our stuff and kids to the entrance. We ought to just fork over the money for the tickets and stay. (Which option would you pick?)
I was making my case using the classic trap known as the sunk cost fallacy. The sunk cost fallacy says that we will commit to something because we’ve already invested (usually time or money) and don’t want to waste those spent resources, even if staying committed comes at an additional cost or without additional benefit.
The sunk cost fallacy in everyday life
Here’s an example of how you might experience the sunk cost fallacy: You get 50 pages into a 300-page book and decide you don't like it, but you finish reading the book because you started it. Whether you finish the book or not, you’ve read 50 pages. Reading further when you don’t enjoy it may not give you any benefit. You won’t get your time back for the fifty pages you read, so using it as a reason for your present decision - to finish the book - is irrelevant.
Other examples of the sunk cost fallacy include staying in a career because you completed the schooling for a particular career 🙋🏼♀️, staying with the wrong partner because of your long history, going on a trip because you bought a ticket, or continuing to gamble to make up for earlier losses.
As a broad proposition, research suggests that we perceive losses as worse than we perceive possible gains. So, when faced with a potential loss, such as the time or money we’ve already invested, we value those losses more highly than we value what we might gain by changing course. Because of this, we tend to make decisions based on the past. This causes us to make irrational and emotion-based decisions.
Our decision to attend the Balloon Fiesta
When I argued we should stay and buy tickets to the fiesta because we had already invested resources into it, I was arguing from an irrational (and definitely emotional) place – the sunk cost fallacy. I was considering all that we had done to get to the entrance, and not what we might gain by changing course. Without rationally or mindfully considering other options, we ultimately chose to attend
Avoiding the sunk cost fallacy
While the sunk cost fallacy got the best of me that day, this experience gave me the opportunity to dive a little deeper into learning about this cognitive bias, so I’ll take that as a win (and hope that this can help you operate from a rational place next time you’re faced with the sunk cost fallacy). Knowing when a sunk cost is affecting your decision-making can be challenging and knowing when to proceed in a situation or pivot is nuanced.
To avoid the sunk cost fallacy, consider the following:
When faced with a decision, pay attention to whether you are considering any past investments. Acknowledge what emotions come up for you.
Make your decision consciously rejecting consideration of past investments. Ask, “Deliberately ignoring any past actions, do I want to participate in this [book, event, relationship, trip, etc.]?
Ask, “What outcome am I seeking? Will I achieve that outcome?”
If the opportunity still achieves your desired outcome, go for it (if it has a monetary cost, make sure it passes this other test).
If you don't want to participate it in further, then make that decision. Acknowledge what benefits you will obtain by choosing not to proceed, and disregard what you previously invested.
The sunk cost fallacy is just one of many cognitive biases that affect our decision making. Becoming aware of these biases can help us overcome unaligned decision-making and keep us on track to make more intentional decisions for future-us and away from the effects of anything past-us has done.
Can you think of a time where the sunk cost fallacy has encouraged you to proceed in something you didn’t want to invest more into?