Beware of “Sunk Cost Fallacy” and make stronger decisions

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In my early 20s, I once had a prized ticket to see my favorite rock band, Judas Priest, in Long Island, which was a bit of a hike from where I was living and working in central New Jersey. I got my ticket, had my plans set… but a complication with my summer job at the time caused me to not leave for a good three hours later than I planned.

I still chose to go, I mean I paid for the ticket, I wanted to go, and I barely gave it a thought. After a long ordeal of driving there with challenging directions (no smartphone/GPS at that time), I got to the show hours late, my ticket and (amazing) seat was no longer worth much of anything and I had to stand in the aisle bumping elbows with similarly unlucky fans and see only a small portion of the show. Finally, I had a long drive home to top it all off.

What is sunk cost fallacy?

That experience is a good example of sunk cost fallacy – pursuing an action due to prior investment (of effort or cost) regardless of new additional costs. What should I have done? Evaluated the “additional costs” of leaving so much later and if it would have been worth the effort.

Of course, the younger me had never heard of sunk cost fallacy, but now I am trying to learn from it. The impact of making this “fresh analysis” is very revealing in so many of my choices. When facing a decision I attempt to wipe my brain of prior work/cost/investment and instead think:

Regardless of any history, what is the choice that has the best outcome right now?

Still, you need to evaluate the outcomes based on everything you know (including sunk costs!). There are times that costs “sunk” are actually investments and the future outcome looks good because of it. But there are times that doubling-down or “throwing good money after bad” is just the wrong call.

Be aware of the tendency to overvalue sunk costs

Just remember that it is a human tendency to cater to sunk costs as too influential when they are nothing more than the history of your current decision. (Read more about sunk cost fallacy on wiki). By acknowledging this tendency, then mentally wiping it clean, you pave the way to choosing the strongest outcome you can. Don’t just blindly follow a path because of your investment in it.

Sunk cost fallacy has broken some logjams for me in hard decisions. Try it yourself – when faced with a difficult choice or possible change, can you remove your mental investment and see the outcomes with an objective slant? Even if you continue on your current path, this self-reflection can provide confidence and clarity.