The sunk cost fallacy is a psychological bias that causes people to continue investing in something—whether money, time, or effort—because they have already made significant investments, even when quitting would be the more rational choice. Simply put, you spend on a failed venture because you’ve already spent on it. Let me give you a common example. Have you ever sat down to watch a movie and despite being bored after some while, you proceed to finish it. Why? It’s because you already invested your time in it, and now you feel obligated to watch it fully. It happens to books more than movies, but it’s the same concept.
The term was coined by Hal Arkes and Catherine Blumer in 1985. They presented participants with a scenario: Imagine you bought a $100 ski trip but later found a better $50 ski trip that you would enjoy more. Do you think they took the $50 trip? Well, most people irrationally chose to go on the more expensive trip, even though it would bring less enjoyment, simply because they had already spent more money on it.
The shocking thing about this fallacy is that even government organizations fall for it. If anybody remembers, the Concorde Project was one of the biggest financial losses for Britain and France. They had spent billions of dollars on it, and yet still spent on the project. When questions were raised, they justified their expense by stating the billions they already spent on it. Their excuse was: I spent billions of dollars on the project, so I might as well spend more. Crazy, right?
Tomorrow let’s talk about the Gambler’s Fallacy, a bias that is quite similar to this one.
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