The sunk cost bias is a thinking trap that not only slows down personal improvement efforts, but one which can make people literally waste their whole lives on — something I’ve seen happening with disturbing regularity. The good news is that, like most thinking traps, the biggest step you can take to overcome it is by simply becoming aware of it.
Suppose you pre-ordered a non-refundable ticket to a basketball game. However, on the night of the game, you simply don’t feel like going anymore: you’re tired, there’s a blizzard raging outside, and the game will be televised. You regret the fact that you bought the ticket because, frankly, you would prefer to stay at home, light up your fireplace and comfortably watch the game on TV.
But the fact is that you did buy the ticket — and it was quite expensive and hard to get. What would you do?
The Sunk Cost Bias Exposed
Sunk costs are costs that are irrecoverable. It’s something that you already spent and that you won’t get back, regardless of future outcomes. It’s like that gym club membership you bought: whether you get its benefits or not, the money is gone and there’s no way to get it back.
In the basketball game ticket example, the point is that the money is already gone, so now you are better off doing what pleases you best. So, unless you can sell the ticket, just forget about what you paid for it. You are better off using it to help fuel the fireplace while you comfortably enjoy the game on TV.
This is, of course, easier said than done. There are many psychological blocks in the way of simply discarding an expensive ticket. And if that holds true for a mere basketball game ticket, imagine how strong that effect is when it comes to, say, abandoning a long-time relationship that you invested so much time on, but that just isn’t working anymore.
That’s the sunk cost bias. It’s what you may have heard as “throwing good money after bad”, but it isn’t just about money: any type of investment you make — time, money, effort, anything — is subject to this thinking trap.
Are You a Victim of the Sunk Cost Bias?
Persisting with bad decisions due to our irrational attachment to costs that we cannot recover has become so common that you can find them just about anywhere. Big organizations and governments excel at it. (A government that insists on a war so the lives already spent “are not wasted” comes to mind, but I digress…)
The fact is that this mental trap permeates our decision making and affects not only organizations, but it deeply affects us at a personal level, too. Check out some examples:
- Bad overall life decisions: What would you say about persisting on an unfulfilling job or career, just because you ‘invested so much time in it’? Or persisting on a bad relationship, just to ‘make all those years worth it’? These are the saddest cases of the sunk cost effect that I know, since people can literally waste years — if not their whole lives — because of it.
- Bad financial decisions: Do you know anyone who refused to sell something for a perfectly reasonable price, just because they spent so much money in it (maybe property or stocks)? What about casino gamblers that simply won’t quit, claiming they need to make the money that they already lost “worth it”?
- Bad Everyday Decisions: You ordered too much food, but you eat it anyway despite being full. You keep useless clutter in your home, if only because you paid for it. You watch a bad movie up to the end, only because you started watching it. The examples just go on and on. The consequences for each of them may seem trivial at first, but if you think about it, we make these mistakes so often that they add up pretty quickly.
Why Do We Fall Into the Trap and How to Avoid It
So, if dwelling on sunk costs is a bad idea, why do we do it? More importantly, how do we overcome this thinking trap? Here are 4 main reasons why we do it, along with ways to overcome each of them.
1. We Want to Make the Investment Worth Our While
This is the fundamental reasoning behind how we deal with sunk costs. We have a genuine interest in making our efforts worth our while. We don’t want to feel that we spent anything in vain — time, money, anything. However, even if we know deep inside that our approach is wrong, we still have trouble abandoning it.
Solution
Sure, we all expect to have a good return on what we invest. It would be insane not to. Just make sure you’re not on a situation solely because you made the investment in the first place. You don’t make a bad move any better by dwelling more on it, unless you can effectively make something that changes the expected outcome.
Stop spending resources on a bad move — throwing good money after bad — immediately and start spending these resources on a new one: Cut your losses and move on!
2. We Fear Failing and Looking Foolish
We live in a success-oriented culture. Cutting losses means admitting you made a mistake, if not in public, at least to yourself. Our egos will always stubbornly try to hold us to our commitments, so we don’t need to admit our imperfections. If you made a public commitment, you’re even less likely to break it, as there will probably be a lot of explaining to do.
Solution
Allow yourself to make mistakes. Quickly admitting your mistakes is much more productive than entrenching yourself in a situation just to “save face”. Be aware that quitting is not failing (actually, sometimes it’s exactly the opposite).
Better yet, do like Socrates and think differently: become proud of admitting your errors. Change your attitude from hiding mistakes to actively exposing them. Look for them: the more, the merrier. You’ll surely feel defenseless and uneasy at first, but once you get used to it, you’ll feel invulnerable to harsh criticism.
Moreover, instead of focusing on the sunk costs, take pride in having recognized the costs associated with sticking to the old approach.
3. We Become Attached to Our Commitments
After we decide to do something, we feel attached to what we committed to. And the bigger the commitment, the harder it is to let go. Not only that, but it’s a human trait to be overconfident that everything we set ourselves to do will pay off. We’re biased when we evaluate the probability of success of already-made commitments. (This is known as overly optimistic probability bias.)
Solution
Be aware of the natural bias to stay on your current course of action. While considering other options, evaluate the status quo as it was just another option, rather than the front-runner.
Also, try to detach yourself emotionally from your past decisions. Be especially careful with things that worked at some point in the past as this is not a guarantee that they’ll work in your favor again.
I like to practice what I call “zero-based thinking”. Forget about the past and consider this very moment as your “point-zero” in time: act like all you have is the present. I often do this by pretending that I just woke up with some sort of amnesia. I imagine myself in my current situation, but without any knowledge of how I got there. This way, it’s much easier to focus on my current situation, instead of clinging to past decisions that would drag me down.
4. We Lose Sight of Our Underlying Goals
Sometimes we become so preoccupied by how much time and effort we put into something that we lose sight of its relevance in the greater scheme of things. We become attached to the means and forget about the ends.
Solution
Always be mindful of long-term objectives. Don’t confuse any greater goal you want to achieve with the specific means of implementation you’re attached to. Don’t get caught up in justifying your current actions.
Moving away from the basketball game example, suppose your original goal was to have fun, so you rented a movie. If the movie turns out to be a bad one, don’t forget that your goal was not to spend two hours watching a movie, but to have fun. So, turn it off and go have fun, somehow.
Let Go of the Past, Move On
I’m not recommending that you become a quitter by any means. The point is to be always aware of your current situation. If you decide to stick with your current approach, that’s great. Do it consciously and for the right reasons.
And remember that the greatest example of sunk cost you pay is with your own time, and which you will not be able to recover: all that you lived up until now is gone — you just can’t reclaim that time. Stop clinging to the past and make the most of your life right now.
Totally agree. Kind of makes me feel happy reading your detailed analysis, mainly because I always try and work from the ‘gut’. Sometimes it’s by going with how you feel and not mentally battling that you come out the other side. And on that other side I don’t find myself frustrated with myself anymore. Just a lot clearer because I’ve stuck with my most current decision rather than a previous one based on a particular set of circumstances at the time (i.e. I really wanted to go to a basketball game when I bought the ticket…)
This is a superb article. Your advice is spot-on and I really like the idea of each day being a zero-point baseline. I spent decades (really!!) doing things I hated because at some point I felt I invested too much to give up. Once I actually DID give it up, though, my whole life changed in such a positive way that I don’t think words can describe it. I hope that your readers will realize how valuable this post can be if they take the time to really digest and use it.
Interesting article! I’ve been caught in that trap before when I got into a real estate investment that went bad. It took me quite a while to decide to bail. Others caught up in the same deal stayed on – and lost even more money.
Luciano, this is really a message needed by many people.
Sometimes we detached too much with what we have spent so much efforts on, that we forgot what we should focus on today.
Just want to let you know, that this message inspire me a lot. Thanks for the awakening!
Robert
Things that help us uncover the fallacy in our thinking are of great benefit. Decision-making in the real world is not taught enough. I had similar ideas on March 9th.
http://writerswhirlpool.blogsp.....times.html
Thanks all for the comments. I’m really glad the article served as inspiration to you.
Annie Binns: The zero-point baseline is a concept I use all the time — it really works for me. I am very curious to see how it would work for other people. If you try it, would you please let us know here how it went?
Usiku: Thanks for the link. As a side note, I find it very weird how some people not only don’t change their minds, but actually take pride of it, as if changing your mind was a sign of weakness.
This is such a spot-on article – it came at a perfect time that I am reviewing all of my “clubs” and subscriptions that I belong to, committees that I serve on…we waste too much time on things that don’t matter. Imagine if we were all just doing what is promising!
Hey Linda, imagine indeed! Something I think about a lot. This was an essential part of my revised mindset as I decided to finally do what is promising.
http://writerswhirlpool.blogsp.....-time.html
This is a great article, Luciano, and I very much recognised myself in your examples above (in fact, it struck me strongly enough that I ended up blogging about it myself)
A quick question for you – I’m great at collecting techniques and knowledge, and lousy at remembering to put it into practice when I need it. Do you have any suggestions for recognising in the moment that you’ve fallen into a ’sunk cost bias’ behaviour pattern, and remembering to choose to do something about it, rather than reacting out of habit?
Blesings
Starfire
Starfire: I enjoyed reading your blog post: it exposes the real drama of the sunk cost bias, in a very personal and human way. Getting a message in such a warm way is something I need to improve in my own writing.
Regarding your question… Being aware of the sunk cost bias (and how it manifests specifically to you) is the biggest part of the equation. Judging by your blog post, you’re set in that regard.
I think it really boils down to being observant of your own behaviors, which is done only by training. Maybe there’s a phrase you always use (“If only I hadn’t…” or “Why did I do this…”), or some specific feeling you always have during those situations?
I thought this was a great post!! My husband was suffering from sunk cost bias with a real estate investment we had…I wrote about it in our blog here with a link back to you with your great article (and great solutions for dealing with the sunk cost bias too!): http://revnyou.wordpress.com/2.....rth-today/
Thanks for the great piece!
Hi Julie, thanks for the link and for sharing your story! You know, the more expensive something is, the more likely it is to cause sunk cost attachments. Falling into that trap for real estate is very common… Glad you moved on!
I think this idea is wrong in the specific case it mentions in the introduction and the beginning of the essay. I dont not feel it is better to do what you really want to do at that moment in time. The rewards will be greater for having fought through your want to be lazy. I have had both of these experiences but the staying home scenario only once. I have bought a un refundable or sellable ticket for an event. I decieded that day that I didn’t feel like going. I have stayed home and felt great about it not worried that I wasted my money (I was doing what I wanted.). But, the next time at the very last minute I forced my self to go to the event. The second I got there my whole perspective changed. It turned out to be a great and I was so happy that I made the choice to go. It was even a better reward than staying in because I fought through my complacency and went to the game, not wasting my money, and had a great experience.(This example can also work with the gym membership.) Even if I had a horrible time it would be far more rewarding because I believe that everything bad that happens to you is a learning experience and therefore positve. Ever since then I always end up fighting through my laziness and going because it always feels better. This excludes times when I am sick or there is an emergencey that I causes me to miss the event. I completely understand some of the other examples because there is a time to move on from things in the past without guilt. (Throwing away that old shirt or getting rid of your first car.) I just dont think the game and the gym membership are good examples as they seem to me to be more rewarding than submitting to what you want at the moment as oppossed to what is actually better for you.
Sorry for grammar mistakes,
Comments appreciated…
You can go to the game despite of preferring to be at home at the moment of choice, sure.
Just make sure you do it for the right reasons.
In your case, the reason might be that you already knew you would find the game fun the minute you arrive there; or maybe the incentive is the sense of accomplishment for beating laziness. Or maybe for the potential learning experience.
Just don’t do it solely for “recovering the ticket” — that’s the point.
Does that make sense?
I do understand. However, for me the first example was a bad one. I figure that if you are buying a ticket for yourself there is some inherent benefit that you will gain by going the event. Why would you buy the ticket otherwise.
I thought of a personal example which made more sense to me, and helped me to understand the idea. Lets say I bought two tickets(Non refundable/Non sellable) to Dolly Parton to go with my girlfriend. I do not like Dolly Parton but she does. Now if we break up or she cant go anymore I would be in the same position. Should I go to “save” the money or just stay home. Ten times out of ten I would stay home. I would not gain anything from going in fact it would be horrible having to sit there listening to music I dont like.
Thanks for the topic and taking the time to conversate. I think this is a lesson we all need to take heed of more often… Especially the stubborn ones out there.
Your example is much better than mine. Thanks for sharing!
This article seems to assert the fact that no matter what the sunk cost is, you should always go with the option that will lead to the most happiness. But it assumes that the only options the person considers are worth any merit. This mindset ignores all unseen probabilities that this thing called “life” has. Let’s say you stayed home for whichever reason is chosen due to the thought process that you believe it will bring more happiness to you. In doing this, you have forgone the possibilities life could have thrown in your direction if you had gone. This does not mean that nothing will happen if you were to stay at home, but this article naturally assumes that picking the option that has the biggest payoff in the near future will bring the best result for your life. This thought process is the same as a kid wanting a cooking from a cookie jar and stealing it not knowing that simply asking would be a better lesson to learn in life. The sunk cost bias just seems narrow minded in this view. Given the option of A or B, you should pick the one that gives the best result; but ignore the unseen options C, D, etc.
Another interesting problem I could see in this article was that the article does not clarify issues of obligation. For instance, let’s say your friend bought you tickets to the game and you were not interested but wanted to do something with your pal. When it came to the night of the game, you did not feel like getting out in the cold weather and you did not feel up to it. This sunk-cost bias suggests doing what would make you happier with no mention to obligation currently agreed upon by both parties. If you were to go with this bias, you would sit at home and possibly taint your credibility with your friend. Now imagine this on multiple occasions and the effects of never holding true to your word. This would cause a massive loss of credibility to satisfy short-term happiness and would, in no way, seem to produce the most happiness desired overall.
These are just a few of my ideas that this article brought to mind while analyzing it. I am definitely open to criticisms by those of you willing to back your thoughts with sufficient reasoning.
Jacob, I agree with you that staying at home may prevent you from interesting life experiences. I also understand that many times there are issues of obligation involved.
However, I would say that these observations are probably beyond the point of the article. What I’m trying to say with the basketball game example is: decide to go or to stay, but don’t base your decision solely on “recovering the cost” of the ticket. If you’re doing it to your keep your word, fine — that’s a reason. If you’re going to the game for unforeseen life opportunities, that’s fine, too. Just please don’t do it for the ticket cost.
Luciano, I loved the article. As I was reading through all these comments I noticed you are fighting what I seem to fight constantly. People want to find counter-examples or pick at the edges while missing the main point or at least going beyond the main point. I love the way you worded it:
“However, I would say that these observations are probably beyond the point of the article.”
I’ve even been tempted to write a blog article that said something along these lines. Stop treating my articles as as categorical cover all situations at all times declarations. They have a main theme that we need to get on with and stop sniping at the edges.
Any advice in that regard or is this just part of the game we play?
Hi Stephen, glad to have you here!
I believe that for many people this is the most natural way of responding to such articles.
When writing articles, we usually need to focus on single facets, while ignoring others. We do that so we can make our points cleanly.
Readers, however, tend to see examples as a whole, not necessarily focusing on the same thing we do (and want them to do). Maybe they lived something similar and acted differently, so they relate their own experience.
Personally, I think that even when the discussions go a little off the main point, it’s still great to see readers playing with the article’s idea: it shows they are trying to make sense of it!
Don’t you agree?