Sunk Cost Fallacy

“I’ve lost $1000 to the slot machines already, so I can’t stop now or else I’ll never win my money back.”

You commit the sunk cost fallacy when you don’t want to give up on something that you’ve invested in even if it has become clear that the chances of it paying off are very low and sticking with it will lead to greater losses. It happens because people want to recoup resources and have a strong loss aversion. Rather than being used as a method of trying to win arguments, this fallacy is more often committed in one’s own thought processes (it is a cognitive bias).

Other examples:

  • Someone goes to a movie and realizes right away that they hate it, but stays because they don’t want the money they spent on the ticket and the time they spent driving there to be wasted (even though it means they will waste more time in the end).

  • Someone stays in an unhappy relationship because they’ve already invested a lot of time into it.

A real-life example of governments being influenced by the sunk cost fallacy is the Concorde jet project. In the 1960s, the British and French governments decided to design and build the supersonic Concorde jet. This project was predicted to cost less than one hundred and thirty million dollars, but it ended up being more difficult and expensive than expected. It soon became clear that this project wasn’t going to be profitable, but the governments didn’t want to give up. They ended up spending decades and billions of dollars on this project, and they only sold 20 jets in the end. This might have been the aerospace industry’s biggest commercial disaster of all time.

It’s very important to keep an eye out for this fallacy because if we don’t know when to accept our losses and give up on something, we can end up losing much, much more. Rational decision-making should consider only future costs and benefits, not those irrecoverable by past expenses.

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