We all know we should stop while we are ahead. But why don’t we stop when we are behind? We invest our time and money in projects and relationships, even when they aren’t working. What happens when we don’t get a return on our investment?
The sunk cost fallacy can present itself in all areas of our lives. Think of that relationship you stayed in for too long. Or maybe that investment in decline, which you should have sold. How do we break free from the susceptibility of being stuck in a time warp by the sunk cost fallacy?
This article will detail the sunk cost fallacy and why it is detrimental to your mental health. We will provide 5 tips on how you can avoid being sucked into a sunk cost fallacy.
- What is the sunk cost fallacy?
- What are examples of sunk cost fallacy?
- Studies on sunk cost fallacy
- How does the sunk cost fallacy affect your mental health?
- 5 tips to avoid the sunk cost fallacy
- Wrapping up
What is the sunk cost fallacy?
The origins of the name of this cognitive bias can be broken down into two parts.
The first part is derived from the economic term “sunk cost,” which refers to an expense that is spent and can not be recovered.
The second term, “fallacy,” is a faulty belief.
When we put the terms together, we get the cognitive bias “sunk cost fallacy,” which we now understand means having a faulty belief about an unrecoverable expense. The expense could be any type of resource, including:
The sunk cost fallacy comes into effect when we are reluctant to abandon a course of action due to the amount of time already invested. This reluctance can persevere even when there is clear information that suggests abandoning is the most beneficial option.
The attitude here is “we’ve come too far to stop.”
What are examples of sunk cost fallacy?
There are examples of sunk cost fallacy in all areas of our lives.
One of the most significant examples of sunk cost fallacy in our personal lives is when we stay in relationships for too long. This can be both romantic and platonic relationships.
Some couples stay together when they would be better apart. They remain in an unhappy relationship because they have already invested many years of their lives.
I have experienced sunk cost fallacy in a friendship.
It took me years to untangle from a broken friendship. This person was one of my oldest friends, and we had a bank full of memories and experiences. This investment of time spent together made me reluctant to cut ties. We had journeyed through life together. And yet, the friendship did not bring me any happiness anymore.
A famous Governmental example of the sunk cost fallacy has been dubbed the “Concord Fallacy.” In the 1960s, the British and French Governments invested heavily in a supersonic airplane project called Concorde. They knowingly continued with a large-scale project despite knowing it was failing.
Yet, over a time scale of 4 decades, the French and British governments continued with and defended the project when they should have abandoned it.
Critical lessons learned during the Concorde debacle were that any decision to continue should not be based on what has already been.
Studies on sunk cost fallacy
This study found a specific example of sunk cost fallacy that was linked with seeking urgent medical attention. Those affected by the sunk cost fallacy waited longer to seek medical attention.
The study was based on a decision-making questionnaire about health, social behaviors, and decision-making.
The researchers used a series of vignettes to test where participants scored on a sunk cost fallacy scale. They compared the participants’ answers to different situations. For instance, participants were asked to imagine they had paid to watch a movie, and 5 minutes in, they felt bored.
They were asked how long they would keep watching the movie, with a series of options
- Stop watching immediately.
- Stop watching in 5 minutes.
- Stop watching in 10 minutes.
This was then compared with a similar situation where the movie was free.
Those who experienced the sunk cost fallacy were more likely to continue watching the movie for an extended time when they had paid for it. So when the participants believed they had made an investment, despite their lack of enjoyment, they continued on their course of behavior.
Is this stubbornness, determination, or just an exaggerated sense of commitment?
How does the sunk cost fallacy affect your mental health?
Having researched the sunk cost fallacy, it seems that those who suffer from this cognitive bias are in a state of dogmatic and rigid thinking. We believe we are focused, but in actual fact, we are experiencing tunnel vision. We can not see our options nor recognize when it’s time to stop.
Does the sunk cost fallacy encourage us to bury our heads in the sand in all areas of our life?
A study from 2016 found that participants who were affected by the sunk cost fallacy were more likely to suffer from a binge eating disorder and depression. People more susceptible to the sunk cost fallacy are also more likely to suffer from emotional problems.
I was once the proud owner of a small business. Let’s just say it was a labor of love. I considered disbanding it many times. Each time, I resorted to the same sunk cost fallacy thinking, “I’ve invested so much time and money into this, I can’t stop now.” And so I trudged on. I invested more time into a business that was not going anywhere. As a result, I got frustrated, anxious, and exhausted, and eventually, I burned out.
I look back now and recognize I should have disbanded the business several years before I did. Hindsight is a beautiful thing.
5 tips to avoid the sunk cost fallacy
This article on the sunk cost fallacy suggests that “being wise may count more than being smart” when avoiding the trap of the sunk cost fallacy.
Often we don’t even realize our actions and behaviors align with this cognitive bias.
Here are 5 tips on avoiding falling victim to a sunk cost fallacy.
1. Understand impermanence
Nothing lasts forever. Once we understand this, we can learn to untangle our attachments to things. When we recognize the impermanence of everything around us, we know to place less weight on time and money already invested.
People come, and people go. The same goes for projects, money, and business. No matter what we do, nothing stays the same.
When we lean into impermanence, “we don’t attach our happiness onto something staying the same.”
This notion teaches us to embrace change and stop resisting it. In turn, it will help us to be more resistant to the sunk cost fallacy.
2. Look at things with fresh eyes
Sometimes, all we need is a fresh pair of eyes.
We discern our situation based on its history. But would we make the same judgments if we didn’t know the history?
Try to look at something in your life at face value. Disregard what has gone before. The likelihood is you will see things differently.
All it takes is for us to wake up and see things in a new light. The key is to stay curious. Our curiosity helps us see things from different perspectives.
Let’s put this another way.
Do you know anyone who is desperately unhappy in their relationship? Have they tried everything to improve their connection to no avail? Does it puzzle you that they won’t just end their relationship?
You wouldn’t say to them, “well, you’ve been together for 10 years, so you just have to stick it now”. Hell no, you would encourage them to get out! Solutions are clear when we aren’t weighed down by an emotional investment.
3. Get a different opinion
Sometimes we can’t see the wood for the trees. This is precisely why it can be helpful to seek the opinion of another. They bring an objective viewpoint to the table. This objectivity means any time, energy or money already invested is not front and center.
Asking for the opinion of someone else can look like many different things:
- Seeking advice from a trusted friend.
- Recruiting a business mentor.
- Requesting a performance or business review.
- Enlisting a therapist.
And here is the crucial thing. We don’t have to agree with the opinion of another. But sometimes, just hearing different perspectives and ideas is enough to break us out of our sunk cost fallacy spell.
4. Work on decision-making skills
This article perfectly articulates it, “The sunk cost fallacy means that we are making decisions that are irrational and lead to suboptimal outcomes.”
We will become less susceptible to the sunk cost fallacy by working on our decision-making skills.
By its very nature, the sunk cost fallacy has sufferers believing they have limited options. They feel a sense of entrapment, and that forward is the only direction.
Influential decision-makers analyze a situation and weigh all the options available. This critical thinking helps us avoid being stung by the sunk cost fallacy.
You can read more about decision-making in our article on “how to be more decisive.”
5. Improve your self talk
I didn’t wrap up my business sooner for fear of being seen as a failure. While I considered what I had already invested, I also suffered from negative self-talk telling me I would be a failure if I gave up. And I’m not a quitter, so I had to prove that inner voice wrong.
I berated myself for even thinking about giving up. I chastised myself for being unable to find a creative way to turn the business around. And so I kept plugging because if I stopped, I would have failed. Remember, I’m not a quitter. But the reality is my perseverance was futile.
Be aware of your self-talk. Don’t let it bully you into pursuing something that you may even know in your heart is beyond repair.
Knowing when to stop is as important as knowing when to start. We just need to train our inner voices on that notion.
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Endlessly hammering away at a project is not always healthy. Hard work does not always pay off. We need to learn when to call it quits. Learning when a project or a relationship is no longer beneficial takes wisdom. Sometimes even the smartest of us are affected by the sunk cost fallacy.
When was the last time you fell victim to the sunk cost fallacy? Did you overcome it or ended up in a worse position? I’d love to hear from you in the comments below!