The Sunk Cost Fallacy: What is it and why does it happen?

Much of our decision-making is focused on how and where to invest our time, money, and effort. Though we may not realize it our decisions easily change directions.
The Sunk Cost Fallacy is one of the more frequent delusions which clouds our judgment. Sunk Costs are outlaid of time, money, or effort that we have already made, and because they have already been made we can’t get them back.

Introduction

Sunk Costs are that we pay too much attention to. We tend to base our current decisions on what we have already invested leading us to feel like we have too much invested to quit.
Sunk cost fallacy is why if we buy a movie ticket for 200 rupees many of us feel like we have to stay for the entire movie even if it is absolutely terrible. Our mind wanders about spending the 200 rupees so that should not go in vain.

Example

An example to illustrate sunk cost fallacy is the Concorde Supersonic Transport Project of the French and British Governments. The two governments wanted to make these really fast supersonic airplanes that could fly across the Atlantic in under 4 hours but this project was really expensive and in the middle of it they realized that it was not going to pay off.

Why?

They were not going to make much money from it but they continued to sink money into the project anyway on the grounds that they had already invested a lot of money. The government paid too much attention to sunk costs when deciding whether or not to continue with the project.

Only in terms of money?

They were never going to get their initial investments back so what they should have done is ignore those sunk costs. It is worth mentioning that sunk costs do not have to involve money.
They are just as real with non-monetary things too. We can fall into this trap when we continue to wear a pair of shoes that make our feet hurt solely because we spent 800 rs on them.

We also fall into this trap when we are in a relationship solely because we have invested 3 years of time for the partner and being not happy also forces us to stay in the relationship because of the pre-investment.
The sunk cost fallacy seeps into nearly every aspect of our life and because of which it’s worth asking the question why does this happen.

There are two main reasons:

1) We do not want to appear to be wasteful.
2) We do not like losses

Conclusion

The message here is not to quit everything. It’s worth sticking to somethings. The message is to ignore sunk costs. Do not base your decisions on the Time, Money, or effort you have already invested.

It is clear in research that we cannot get our sunk costs back. All we can do is look at the resources we currently have and invest them wisely.
If we embrace the idea of sunk costs we should feel better about putting a book 100 pages in if we are not enjoying it.