Sunk Cost Fallacy
Why You Should Forget the Past?
aka The Concorde Effect
This is a thinking error.
The Sunk cost fallacy is more dangerous when we have invested a lot of time, money, energy or love in something. This investment becomes a reason to carry on, even if we are dealing with a lost cause. The more we invest, the greater the sunk costs are, and the greater the urge to continue becomes.
Investors frequently fall victim to the sunk cost fallacy.
This irrational behavior is driven by a need for consistency. After all, consistency signifies credibility. We find contradictions abominable. If we decide to cancel a project halfway through, we create a contradiction: we admit that we once thought differently.
Carrying on with a meaningless project delays this painful realization and keeps up appearances.
Sunk cost fallacy leads to costly, even disastrous errors of judgment.
Thought patterns
- We’ve come this far…
- I’ve read so much of this book already…
- But I’ve spent two years doing this course…
If you recognise any of these thought patterns, it shows that the sunk cost fallacy is at work in a corner of your brain.
Rational decision-making requires you to forget about the costs incurred to date. No matter how much you have already invested, only your assessment of the future costs and benefits counts.