Don’t Sink with the Ship – The Sunk Cost Fallacy

Have you ever finished reading a book or watching a movie you didn’t like because you were already half-way through? How about drinking the rest of your fancy coffee drink that went cold an hour ago because it was expensive? Remember when you continued dating that guy/girl because you had already invested so many months or years of your life with them, even when you knew the relationship would end in a break-up?

You’ve succumbed to the sunk cost fallacy.

The Basics:

A sunk cost is a cost that has already been incurred and cannot be recovered. In the examples above, the sunk costs are time and money.

The Economic Principle:

The sunk cost fallacy is when you continue investing in something based on the how much time/money you invested into that behavior or item in the past. It is the result of an emotional decision rather than a rational one.

Using one of the examples above, if you continue reading a book or watching a movie that you hate, you are now committing additional free time to that action when you could be doing something else you enjoy. You are wasting your time on something because you feel you owe it to the book/movie to finish it.

And that fancy $6 drink that went cold an hour ago? Gross! I am not a coffee drinker, so I never got to participate in the whole pumpkin spiced latte craze that happens every September. Well, last year, my favorite coffee chain came out with a pumpkin spiced chai latte. I was elated to be able to get in on the whole trend. After my first sip, I thought it was kind of gross. Did I continue to drink nearly a quarter of it anyways because of how much I paid for it? You better believe it. Was it worth it? Absolutely not! I threw it away in disgust with myself for even drinking that much of it and then talked myself out of going to get my usual matcha latte because I felt guilty after not drinking the original drink I paid for. Not only did I continue consuming something that I thought tasted disgusting, but I deprived myself of something I liked because I felt guilty for the previously spent money. Sunk cost fallacy at its finest.

So, how can you apply this going forward? The examples above are simple, but think about other ways to apply this in your daily life.

• Have you put time into a project only to realize you’re never going to finish it but you won’t start another one out of guilt for not finishing the original project?
• How about depriving yourself of new clothes because you’ve gained a bit of weight and only fit into a few items in your closet but you keep telling yourself you’ll take the weight off and you don’t want to spend money on clothes for your current size?
• Are you reluctant to sign up for a gym or workout class you want to join because you have exercise equipment downstairs that you never use?

Overall, I’ve found that taking an honest look at the future, and stripping the emotion out of a specific decision, has given me the freedom to make choices that used to leave me feeling racked with guilt, causing me to be both deprived and feeling regretful, rather than happy and confident in moving forward.