What is Sunk Cost Fallacy? And How To Avoid It

by

Sunk cost fallacy is one of the traps where most people fall into. It’s not just hard but it takes a lot of courage to abandon the project where you already have invested too much time and money.

However, falling into this trap is more dangerous than losing money and time. It also affects productivity which leads to further stress on the individuals.

To understand better about sunk cost fallacy, and how you can prevent it, here are some basic yet important information that can help.

What To Know About Sunk Cost Fallacy?

Before you jump into how to solve this problem, it’s important to understand how it occurs and what sunk cost fallacy actually means.

Well, a sunk cost is an expense that occurred already, and it’s impossible to recover it.

For example, if your business invested millions of dollars into hardware but by some means, the money is gone, and it’s not possible to recover.

Another one that you can consider is buying a ticket for a movie.  But on the day of the event, you get sick. Instead of staying home, you decide to go otherwise the money will waste.

This is what you call falling for the sunk cost fallacy trap.

Not just you spend the money that you can’t get back. But you wot enjoy your time because you are sick too.

Well, all sunk costs are taken as a fixed cost. But not all fixed costs can be the sunk costs.

There are a different number of aliases on which sunk cost fallacy goes by, it includes :

  • Sunk cost-effect
  • Concorde fallacy
  • Sunk cost heuristic
  • Investment trap
  • Escalation bias
  • Escalation of commitment
  • Argument from waste

What Are The Examples Of  Sunk Cost Fallacy?

Sunk cost fallacy happens more than you might think. There are lots of times when people fall into the mindset of “ I might as well…”

It might trigger different decisions related to your personal and professional life.

Investing Too Much In Business

Well, the trap is also found when you are doing business. You invested the money on adding a new range in the product, however, the products fail to get the sales that you are hoping for.

But you already invested the money, so you continue to invest the money as well as efforts to get more sales.

It includes doing more marketing, providing offers, ads on online platforms, etc.

Overeating Because You Paid For It

Well, it’s one of the most common sunk cost fallacy traps where most of the people are trapped.

In the situation of the buffet, you paid for the food and here you have the motive to eat until you get choked from overeating

No matter what you eat and how much, the price of the buffet will don’t change.

That’s why people try to cover the price of a buffet by eating more than they can handle.

Watching a Bad Movie

You purchased the ticket for the movie, but now you can’t make it halfway through

The story is not up to the mark and you can’t tolerate the acting.

Here you can walk out but since you have paid for the tickets and have seen half of the movie, you stay to complete it.

To make up for the money and time you invested, you wasted more of your time.

Staying In A Relationship Even You Know Its bad

Sunk cost fallacy is not just stayed to the professional and personal, but it affects the dating life too.

You have been in a relationship with your partner for years. But you know the relationship is going bad, maybe you don’t feel the same and it’s not healthy for anyone.

Here you should call it off instead because you feel like the time and effort you invested in the person will go to waste, so you continue to be in the relationship.

How Sunk Cost Bias Are Impacting Your Choices & Decisions?

Well sunk cost bias is not just limited to making you fall into the trap of making mistakes.  However, it also affects decision-making ability.

There are some of the points where you can see the impact more often, it includes

You Came All The Way

When you plan something for a really long time and decide to go all the way, but you don’t get what you are hoping for. Still, you decide to do something anyway.

Well, this can be the decision from buying something, for example, if you were planning to purchase a pair of shoes.  You reach the store but it’s not available or out of stock.

Since you invested the time and came all the way, you purchase something instead of buying the shoes you wanted to.

Risking Further To Recovering The Loss

Gambling is the best example of losing more to recover what you lost. If you spend hours in a casino, playing the games and end up losing your money.

 You might invest more to take the chance so you can recover the money you invested, which can be the reason for causing more loss.

Incurring Losses Even More

There is some situation where you invested the money to get more from it. However things go bad or due to some factors, you don’t get the money.

For example,  if you purchased the stocks, but ist going into loss. In the situation of hanging out, hoping to get something from it you lose more money over time.

So, Sunk Cost Bias Is Bad?

Well, the answer to this no.  At least not necessarily. Sometimes the sunk cost bias can be helpful as It can save you from making decisions that can be impulsive.

As a professional example, you can consider the companies who are successful now even if they had losses because they pooled their efforts and money.

Starbuck and Harry Potter are two ideal examples to consider. Both were rejected on their times but later on, they came as successful results.

As for personal, sunk cost bias can help in saving your relationships. For example, filing divorces because you had a fight or something is not going in the right way is not ideal.

Your bias can help you in keeping the persisting efforts to make the relationship work.

How You Can Avoid The Sunk Cost Fallacy?

There are a number of ways that can help you in reducing the chances of falling into such a trap.

factors avoiding sunk cost fallacy

Understand That You Have Bigger Picture

To make sure you don’t fall into the sunk cost fallacy, it’s important to have your vision clear.

The more defined vision you have, the better understanding you will get of what your bigger picture is about.

Now make your vision and turn it into a detailed format. Place it somewhere where you can get the references. Or you can keep it somewhere where you can check frequently.

With this, you can understand and have much more clarity of what decisions and for what you are doing.

It also improves and helps you in encouraging to give more thoughts before you make decisions.

Keep Track Of Investments Or Money

There are lots of things you need to consider. However, when you are doing the investments and money, it’s important to keep track.

This will help you cut the losses when the numbers are not going well.

Tracking helps you in understanding when it’s obvious that things are not going as you planned.

Instead of getting to move on, you might end up wrapped where you can lose more than before.

So with the help of tracking, you can know if the loss is helping you in getting any gain.

Develop Your Own Creative Tension

When you are able to describe the vision and current reality, you also develop creative tension.

However there are some differences, the gap can lead to energetic as well as motivating tension which must be resolved.

Get The Facts Right

If you ever thought that your vision is more worthy as compared to the money you are paying for it.

Maybe you are spending more because you believe that maybe one day you will get the payoff.

This might be the reason behind why you are handing out the idea and bearing the loss. That’s why it’s important to stick with the facts.

Instead of relying on one day everything will turn best for you, analyze your situation so you know the reality.

Also, do not let others influence you, it can be the external forces who might try to continue or push you too hard.

Do Not Get Personal Attachments

Well, lots of people feel stuck with their original plans instead of changing them even if it’s not going to work.

Letting go of things that took too much of your time and effort can be hard.  People develop personal attachments over time which makes it harder.

That’s why you need to let go of the unnecessary feeling that comes with this one i.e. fear of failing or wasting.

Allow To Make Mistakes

The best way to move on from the mistakes is to accept them. But first, you need to make sure that you are not making it too rigid for yourself.

Allow making errors, mistakes, etc. But also accept you are wrong. It can be hard but it will play an important role in the future.

Also, it helps in improving your decision-making process.

Practice Mindfulness

To influence the sunk-cost bias, you can practice mindfulness.

This helps you in developing as well as you can do better focus on breathing and makes you more aware of the present situation.

It also helps you to focus less on what will happen later or in the future.

With this, you can detach yourself from the negative emotions and resist the mindset of sunk cost fallacy.

How To Reduce  The Impact Of Sunk Cost Fallacy?

Well if you are looking for ways that can help in stopping your mind to get influenced by the sunk cost fallacy.

Then there is bad news, the human mind tends to value the loss as compared to the gain.

ways get out from sunk cost trap

It will be always hard to break the long-term relationship, selling stock which is running loss will be difficult, etc.

To make sure that you get less impact from the sunk cost fallacy, here are few points that can help you.

Factors Influencing The Decisions

Consider the factors which are influencing your decision-making. This will help you in understanding what are the prime factors. 

For example, if your prime reason is past effort or money, then you need to rethink your decision once again.

Involve Someone To Take Decisions

Well, it might be something that is blinding your decisions and causing you to get into the situations like sunk cost fallacy.

Here you can add someone else, it can be your employee or trustworthy person. Anyone who can help you in getting a second perspective reading your thoughts. 

Also, it will be helpful to consider all the important aspects and angels that you might be missing.

Consider The Loss Too

Think about the consequence and the loss if you are not taking any action to the situation.

There are lots of points where you can end up doing more losses. For example, if you are selling the stocks that are already losing, it will imply more loss in money and capital to buy more quality stocks.

Use 5 Minute Rule 

Before you decide your final decision, take 5 minutes to think about it.  Think about all the important aspects and angles that can affect your final decision.

Listen to the inner voice and take every small detail that can play the important roles

Avoid Personal Attachments

As mentioned earlier, personal attachments can cause most of the hassle of letting them go.

That’s why whenever you are selling or dealing on your own, it’s important that you have an understanding of value, opinion, and item.

See if you are taking the decisions because of the emotional attachment or there is something that is getting triggered by it.

More To Explore:

Was this article helpful?