Sunk Cost Fallacy

What is it:

We irrationally continue with decisions or projects just because we’ve already put in resources, even when quitting would be wiser. This can lead to bigger losses and wasted opportunities…

I’ve started, so I’ll finish – not copied from Mastermind, honest…”

Overview

The Sunk Cost Fallacy is a thinking trap where we continue investing in something, (time, money, effort, energy), simply because we’ve already invested a lot – even if it’s no longer the best decision or likely to recoup the investment.

Instead of making decisions based on future benefits, we get emotionally attached to our past investment, which can lead to wasting even more resources.

If you’d invested £1000 in a project, and you knew that, at half way, it was never going to achieve what you set out to do, why would you spend another £1000? Wouldn’t it be better to waste £1000, instead of £2000?

What can we do to avoid this?

The best way to avoid this particular bias, it is try to remain as dispassionate about projects as you can, remaining objective, not subjective.

Sadly, this bias is at play when gamblers ‘chase’ payback for past losses, and gambling sites know this.

Examples

• Hygiene products are always sold with a ‘Kills 99% of all germs’ as it’s far better received that saying ‘Our product kills all but the most resistent 1% of germs’.
• Prices are often reframed, according to the ‘Law of 100’; quite simply, anything less than  £100 is more appealing quoted as a percentage. So 10 percent off a £10 good is more appealing than £1 off.
• One of the classic ‘frames’ is the scarcity effect. When we’re told ‘Don’t miss out’ or ‘Your last chance to save’, we instinctively react as opposed to being told we have something to gain from buying a product; fear of losing out is more powerful than the desire to acquire something.