It's Saturday evening and you don't have any plans, so you decide to watch a film at the cinema. Your friends have been raving about a film they saw, and you want to know what the fuss is about.
You head to the cinema, buy a ticket, and sit down with a bag of popcorn; however, thirty minutes into the film you're bored. You hate the film and want to leave, but instead you stay, rationalising it would be a waste of money; plus, you've seen thirty minutes of it, you might as well stay until the end.
Congratulations! You've just fallen victim to the sunk cost fallacy!
Economics
The term sunk cost, also known as a retrospective cost, comes from economics and business:
A sunk cost is a cost that has already been incurred and cannot be recovered....For example, if a firm sinks $400 million on an enterprise software installation, that cost is "sunk" because it was a one-time expense and cannot be recovered once spent.
And you see its related fallacy in business very often. For example: business leaders and project managers continue to fund projects that are late and over budget purely because a lot of money has already been spent, even though many signs indicate that the project could fail.
As happens often with the sunk cost fallacy, the initial investment becomes the sole reason to continue investing, regardless of whether it's the smart, logical choice.
Love and relationships
You met when you were young. The moment your eyes crossed paths it was as though time stood. In the beginning you'd stay up all night talking to one another one the phone and spend almost every waking moment together.
Fifteen years later and the spark has gone. You rarely spend time together and you wonder if you have anything in common any more. You've been to couples therapy, tried dozens of ways to rekindle the relationship and bring back the feelings you once had but it's not working.
Instead of ending the relationship you tell yourself you've both been through so much together, through thick and thin, that it's worth holding onto - you'll find a way.
What can we do about it?
Whenever you're considering changing your mind about something, focus on the future costs and benefits, not on the past investment.
Regardless of the decision you make, realise that the initial investment has gone.
Banner photo by Randen Pederson used under the CC-BY-2.0 license. Changes were made to the original.
Hearts photo by sure2talk used under the CC-BY-2.0 license. Changes were made to the original.
Other posts in the series:
- The lies we tell ourselves - the framing effect
- The lies we tell ourselves - cognitive dissonance
- The lies we tell ourselves - confirmation bias
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