Sunk Costs and Public Commitment

Sunk Costs & Public Commitment

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.
Sunk-Cost Fallacy - Joe Abittan

Sunk-Cost Fallacy

Every time I pick the wrong line at the grocery store I am reminded of the sunk-cost fallacy. There are times I will be stuck in line, see another line moving more quickly, and debate internally if I should jump to the other line or just wait it out in the line I’m already in. Once I remember the sunk-cost fallacy, however, the internal debate shifts and I let go of any feeling that I need to remain in the current line.

 

My grocery store example is a comical take on the sunk-cost fallacy, but in real life, this cognitive error can have huge consequences. Daniel Kahneman describes it this way, “The decision to invest additional resources in a losing account, when better investments are available, is known as the sunk-cost fallacy, a costly mistake that is observed in decisions large and small.”

 

We are going to make decisions and choices for where to invest our time, attention, and money that will turn out to be mistakes. At a certain point we have to realize when something is not working and walk away. Doing so, however, requires that we admit failure, that we cut our losses, and that we search for new opportunities. Admitting that we were wrong, giving up on losses, and searching for new avenues is difficult, and it is not uncommon for us to keep moving forward despite our failures, as if we just need to try harder and push more in order to find the success we desire. This is the base of the sunk-cost fallacy. When we have invested a lot of time, energy, and resources into something it is hard to walk away, even if we would be better off by doing so.

 

Pursuing a career path that clearly isn’t panning out and refusing to try a new different avenue is an example of sunk-cost fallacy. Movie studios that try to reinvent a character or story over and over with continued failure is another example. Sitting through the terrible movie the studio produced, rather than leaving the theater early, is also an example of the sunk-cost fallacy. In all of these instances, an investment has been made, and costly efforts to make the investment pay-off are undertaken, generally at a greater loss than would be incurred if we had made a change and walked away.

 

When you find yourself saying, “I have already spent so much money on XYZ, or I have already put so much effort into making XYZ work, and I don’t want to just let that all go to waste,” you are stuck in the middle of the sunk-cost fallacy. At this point, it is time to step back, look at other ways you could spend your money and time, and honestly evaluate what your priorities should be. Doing so, and remembering Kahneman’s quote, will help you begin to make the shift to a better use of your time, energy, and resources. It may be embarrassing and disappointing to admit that something is going in the wrong direction, but ultimately, you will end up in a better and more productive spot.