Why it's Never Too Late to Abandon Watching a Bad Movie

Bias #5: The Sunk Cost Fallacy

Definition:

The dictionary definition describes Sunk Cost Fallacy as a phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it, even when it is clear that abandonment would be more beneficial.

It is a psychological barrier that ties people to unsuccessful endeavors simply because they've committed resources to it.

Where it Occurs:

It is such a common bias that occurs much too often in real life. This bias has percolated into our decision making at all levels. It has become a sort of behavioral issue that pushes us to decide our action based on the past. However, the past should not sway our actions.

Examples:

#1 Business Projects: Companies might continue investing in a failing project simply because they have already spent significant amounts of money or resources, rather than reassessing its viability.

#2 Personal Relationships: People might stay in unhealthy relationships because they have invested a lot of time and emotional energy, hoping things will eventually improve.

Students may persist in a particular field of study or career path they've invested time and money in, even if they discover it's not the right fit for them.

#4 Gambling: Gamblers may keep betting to recoup losses, justifying their decisions by the amount they have already spent.

#5 Entertainment: Someone might sit through a movie or complete a book they’re not enjoying, simply because they’ve already watched half or read part of it.

Conclusion:

Guarding against the sunk cost fallacy involves adopting strategies that promote rational decision-making and focusing on Future Outcomes rather than Past Investments. Here are some practical ways to do so:

#1 Awareness: Be aware of this bias and recognize when it might be influencing your decisions. Understanding the concept is the first step to avoiding it.

#2 Focus on Future Benefits: Make decisions based on potential future benefits and costs rather than what's already been invested. Ask yourself if you would make the same decision today if no prior investment had been made?

#3 Set Clear Objectives: Before starting any project or venture, set clear goals and criteria for success. If these aren't being met, reconsider whether continuing is worthwhile.

#4 Regular Reviews: Periodically review ongoing projects or commitments to assess their progress and relevance. This allows for adjustments or termination if they are no longer viable.

Seek External Perspective: Get input from others who aren't as emotionally or financially invested in the decision. They might provide a more objective viewpoint.

#6 Accept Losses: Cultivate the mindset that cutting losses is sometimes the best path forward. Recognize that walking away from a bad investment can be the most rational choice.

#7 Embrace Flexibility: Be willing to change course when new information says so. Flexibility can prevent further unnecessary commitment to a failing course of action.

#8 Keep Emotions Under Check: In arriving at any decision, consider data and facts rather than basing it on pure emotion. While we all agree that emotions are important, It is better to keep it at arms length in arriving at a good decision.

By implementing these strategies, you can make more rational decisions that better serve your long-term interests, avoiding the pitfalls of the sunk cost fallacy.