What is the Sunk Cost Fallacy? - By Nicolas L.

The sunk cost fallacy is the idea that you should do something because you put a lot of effort or resources into gaining the opportunity to be able to do it. It can be problematic when this reasoning leads people to either do something unpleasant simply because they were already on track to do so, or when it leads them to overlook a better option. For example, if one were to buy a very expensive painting at an auction which ended up looking quite ugly, they might keep it anyway, even though it contributes nothing to their life simply in order to justify the cost. Or, having bought an expensive ticket to one show, if another even better free ticket appears on the same day, the person may choose to attend the one they paid for even if they would enjoy it less.

These decisions are irrational; after all, no choice you can make in the moment would, in those examples, recoup the money you already spent, and so there is no real reason to not simply do whatever is best in the moment. For the person with the choice of shows to attend, both would effectively be free at that point, as they already paid the cost of one. There would be no reason to choose the one they prefer less, beyond the irrational drive to get their money’s worth, for what little good that will do them. With the painting, again, removing it would cost nothing and take little effort; by keeping it, all the unfortunate owner would accomplish would be to actively make their life more unpleasant by forcing themself to stare at an ugly work of so-called art in a hopeless attempt to wring the canvas of its monetary value.

Nonetheless, the sunk cost fallacy is quite often used during decision making, both of individuals but also of corporations and even governments. A very famous example is the Concorde plane, which was continuously developed even once it became clear that it would be financially infeasible to produce and use, simply due to the large investments which had already been made. While perhaps impossible to eliminate entirely, awareness is the first step to limiting the influence of this all-too-common fallacy from your life.