Sunk cost fallacy
Sunk cost fallacy
Following our endeavours recklessly without rational thinking
Have you ever had a feeling of chasing something, putting effort, time or money into an endeavor, even when the current costs outweigh the benefits?
Well, you’re not the only one.
Imagine that you bought a concert ticket a few weeks ago for 5000rs. On the day of the concert, your car broke down and it’s raining outside. You know that traffic will be worse because of the rain and that you can risk getting stuck by going to the concert. Although it seems as though the current drawbacks outweigh the benefits, you are still likely to go to the concert.
This is known as Sunk Cost Fallacy.
We are highly likely to continue an endeavor, a task, or a challenge even when we have realized that not doing it is a much better option than doing it. We are likely to continue an endeavor if we have already invested in it, whether it be a monetary investment or the effort that we put into the decision.
Even in Economic terms, it happens more times than you realize, for example, let’s say you have invested 5,00,000 in a share named ‘X’ and you see X started increasing and your share value has become 6,00,000. You stop looking at the shares for a while because you know they will perform well. Suddenly market crashes and your share value is down to 4,50,000. Now because you have invested time you think it will increase again and you don’t sell it off, even though you see that there is chaos happening in the market, and with time the share value depreciates to 2,00,000. This is the point where you will start thinking that you probably should have sold it off at 4,50,000. What this does is that you set another benchmark thinking it will at least come back to 4,00,000, but it never does.
The sunk cost fallacy means that we are making irrational decisions because we are factoring in influences other than the current alternatives. The fallacy affects many different areas of our lives leading to suboptimal outcomes.
Well why does it keep happening?
The sunk cost fallacy happens because we are all rationally thinking humans with emotions. The feeling of regret, and guilty is what overpowers us whenever we have to make a decision. Not only this but also the fear of missing out or FOMO kicks in which results in us negating the rationale thinking.
One thing that we always fail to think about is that whatever time, effort, or money we lost is not going to come back. We end up making decisions based on past costs instead of present and future costs and benefits, which are the only ones that rationally should make a difference.
The fact that the impact of losses feels much worse to us than the impact of gains, is something that most of us still have to fight. One of the reasons not following through on a decision leads to a feeling of loss is because the overall endeavor gets framed together, instead of in stages.
What can we do?
Well, the number one step would be to listen to your mind instead of your heart. Most times our heart will drive our decisions because in the end let’s accept it we are all humans with human emotions. The key thing to realize here is
“THAT WE ARE HUMAN AND WE WILL MAKE MISTAKES”
Just changing our narrative to something this constructive can help us in accepting our mistakes and thinking about how can we improve or rectify them.
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