Imagine you’re at a restaurant or eating take away, you enjoyed your dinner, but now you’re full. You look down at your plate, and there is still a lot left.
Have you ever thought, “I’m not really hungry, but I can’t let this food go to waste. I paid for it!”
Stuffed, and regretting having overeaten, you’ve just fallen victim to the Sunk Cost Fallacy.
So what is the Sunk Cost Fallacy?
Hal Arkes and Catherine Blumer identified that this behaviour happens when people show a “greater tendency to continue an endeavor once an investment in money, effort, or time has been made. Evidence that the psychological justification for this behavior is predicated on the desire not to appear wasteful is presented.” (The psychology of sunk costs, 1985).
The Sunk Cost Fallacy is closely related to two other major behaviours, loss aversion and status quo bias (more on these in future blog posts!). You buy a book (or ebook) that everyone in your social circle is reading and recommending, but you get 100 pages into the book and are either not enjoying it or not finding it useful. If you keep reading to the end despite not wanting to, because you’ve already paid for it, then you’re sinking more of your time and energy into doing something that isn’t worth it.
You’re carrying out a behaviour that can be construed as irrational.
In other words, if we prepay for something – whether that is through money, time or effort – we are more likely to follow through with the action, event, or behaviour.
Professor Richard Thaler gives us a higher risk example, of an individual who has a £20 ticket to see a new band they like, and has to drive through terrible potentially dangerous weather conditions just to make it to the venue. The individual risks potential danger posed by the drive because they don’t want to lose the investment they have already made in purchasing the ticket. (Mental accounting matters, 1999).
This doesn’t just happen to individuals though. It can happen in organisations too, a famous example being The Concorde airplane project. The joint project between the British and French governments had designed a supersonic airplane that could fly across the Atlantic in just three and half hours (half the time of a normal flight). After some years in operation it became apparent that economically the flight route wasn’t viable but because so much had already been invested in terms of money and political capital, the service dragged for 27 years.
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