The Sunk Cost fallacy is an example of an error in human judgment that we should all try to keep in mind. Thinking about sunk costs and how we respond to them can help us make better decisions in the future. It is one small avenue of cognitive psychology research that we can act on and see immediate benefits in our lives.
Sunk costs pop up all over the place. Are you hesitant to change lines at the grocery store because you have already been waiting in one line for a while and might as well stick it out? Did you start a landscaping project that isn’t turning out the way you want, but you are afraid to give up and try something else because you have already put so much time, money, and effort into the current project? Would you be mad at a politician who wanted to pull out of a deadly war and give up because doing so would mean that soldiers died in vain?
All of these examples are instances where sunk cost fallacies can lead us to make worse decisions. In his book The Better Angels of Our Nature, Steven Pinker writes, “though psychologists don’t fully understand why people are suckers for sunk costs, a common explanation is that it signals a public commitment.” In the examples above, changing course signals something weak about us. We are not patient and not willing to stick out our original decision to wait in one grocery store line relative to another. We are not committed to our vision of a perfect lawn and are willing to give up and put in cheap rock instead of seeing our sprinkler system repair all the way through. And we are not truly patriotic and don’t truly value the lives of soldiers lost in war if we are willing to give up a fight. In each of these areas, we may feel pressured to persist with our original decision which has become more costly than we expected. Even as costs continue to mount, we feel a need to stay the course. We fail to recognize that sunk costs are in the past, that we can’t do anything to recoup them, and that we can make more efficient decisions moving forward if we can avoid feeling bad about sunk costs.
Tied to the pressure we feel is a misperception of incremental costs. Somehow additional time spent in line, additional effort spent on the lawn, and additional lives lost in battle matter less given everything that has already passed. “An increment is judged relative to the previous amount,” writes Pinker. One more life lost in a war doesn’t feel as tragic once many lives have already been lost. Another hundred dollars on sprinkler materials doesn’t feel as costly when we have already put hundreds into our landscaping project (even if $100 in rock would go further and be simpler). And another minute in line at the grocery store is compared the to the time already spent waiting, distorting how we think about that time.
If we can reconsider sunk costs, we can start to make better decisions. We can get over the pride we feel waiting out the terrible line at the grocery store. We can reframe our landscaping and make the simpler decision and begin enjoying our time again. And we can save lives by not continuing fruitless wars because we don’t want those who already died to have died in vain. Changing our relationship to sunk costs and how we consider incremental costs can have an immediate benefit in our lives, one of the few relatively easy lessons we can learn from cognitive psychology research.