Avoiding the Sunk Cost Fallacy

The following is an excerpt from my upcoming and yet to be titled book due out this fall:

What is the Sunk Cost Fallacy and why is it so easy to fall for it?

According to The Decision Lab:

“The Sunk Cost Fallacy describes our tendency to follow through on an endeavor if we have already invested time, effort or money into it, whether or not the current costs outweigh the benefits.”

They then illustrate it with a perfect example:

“Imagine that you bought a concert ticket a few weeks ago for $50. On the day of the concert, you feel sick and it’s raining outside. You know that traffic will be worse because of the rain and that you risk getting sicker by going to the concert. Despite the fact that it seems as though the current drawbacks outweigh the benefits, why are you still likely to choose to go to the concert?”

I’ll admit that under normal circumstances I would totally still go to this concert and would use whatever I needed to talk myself into it! This is not really a problem when we are talking about one evening of our lives. It is a big problem, however, when talking about big career and life decisions.

For example, if you are two years into a 3-year doctorate degree and over time have realized that you no longer have the career or life aspirations that led you to starting the degree in the first place, it can feel much easier to finish the degree (while taking on thousands more in student debt) than quitting only one year away from the finish line. This is because of the sunk cost fallacy.

The same goes for continuing in a chamber ensemble you founded but that is no longer aligned with your artistic goals, staying in a teaching job you don’t enjoy but that required a multi-year certification process to get or continuing a private teaching studio you took years to build even though you no longer enjoy teaching.

A big part of the problem is other people. You won’t ever need to explain away finishing the aforementioned doctorate degree to anyone but you will need to do just that to a number of well-intentioned people if you abort with only a year remaining.e

But no matter what got on your current path, if it’s no longer heading in the direction you wish to go in, you must ignore sunk costs when deciding what your next move should be.

And that doesn’t mean you always abort. When there are family members depending on your current path or other such life circumstances at play, there is a lot that goes into decisions like quitting something with a steady income.

But we will make the best decision for ourselves and the people in our lives when we ignore the resources it took to get us to this point and only look at what should happen next.