10 votes

Advice regarding the Sunken Cost Fallacy

Hello everyone,

I wanted to provide a litmus test, of sorts. This test helps you figure out if you are engaging in the Sunken Cost Fallacy.

Sometimes I find myself asking if I should quit something, let something go, move on, etc.. It can be hard to figure out what the answer to those questions are. I heard a piece of advice regarding this very struggle, and wanted to share it with you all.

Ask yourself:

Knowing what I know now, would I still make the same decision that I did?

If the answer is "No" then you are most likely in a Sunken Cost Fallacy mindset. It could be argued that you should stop whatever it is you're considering stopping.

If the answer is "Yes" it is likely you are not in a Sunken Cost Fallacy and you made a decision in line with your values, even if it may not seem like it (hence the struggling).

Disclaimers:
Knowing the answer to this question does not imply you will know what to do with the information.

This test does not really "fix" anything, so to speak, but it is intended to help you realize when you are in a sunken cost fallacy situation.


Details

What is the Sunken Cost Fallacy?

The sunk cost fallacy is our tendency to follow through with something that we’ve already invested heavily in (be it time, money, effort, or emotional energy), even when giving up is clearly a better idea.

As an example, consider you moved to a new country to start a new job, but the job really isn't what you thought it would be. You hate going to the job everyday, every aspect of it. However, you feel compelled to stick it out, for various reasons. At some point you ask yourself, "knowing what I know now, that this job is not the right fit for me, would I make the same decision?" You answer "No", and thus realize you're in a Sunken Cost Fallacy situation, and you should make steps to removing yourself from that job.

Speculation
Often we end up in situations where we don't actually have all of the information to make a wise decision, whether that's our own doing, or for matters outside of our control (how could one truly know what a job is like without doing the job? how could one truly know what a different country is like if we haven't lived there before?). In these situations, since we don't like to focus on what we can't control - not knowing the unknown-We get stuck in the sunken cost fallacy, because that is something we do know and have control over. "I've already put so much effort into this, I can't quit now" or "I can make this work, is it really that bad?"

I hope what I've written makes sense, but like all things to do with the mind, it's hard to explain outloud.

9 comments

  1. [2]
    DeaconBlue
    Link
    I don't quite follow. If I had known that my house was going to require a fix for plumbing that cost nearly $10,000 then I would have made a different decision on purchasing. However, that doesn't...

    I don't quite follow.

    Knowing what I know now, would I still make the same decision that I did?

    If I had known that my house was going to require a fix for plumbing that cost nearly $10,000 then I would have made a different decision on purchasing. However, that doesn't change that the most reasonable thing to do when confronted with the issue was to just pay up. Selling the house then and there would have been a much bigger loss.

    The same can be said for lots of the things that people get told are sunk cost fallacy - the cost of the next car repair is less than the cost of missing a few days of work or a payment or some combination thereof, especially for people in hourly positions without much PTO.

    It is very possible to end up in a position where logical decisions at every step of the process end up putting you in an illogical position from an outside perspective.

    An example is the dollar auction thought experiment https://en.wikipedia.org/wiki/Dollar_auction

    18 votes
    1. Carrie
      Link Parent
      You raise some good points. Like all things, scale, scope, and a well defined problem are important. In your scenario, if I'm hearing you correctly, you had the following thought process: It...

      You raise some good points.

      Like all things, scale, scope, and a well defined problem are important.

      In your scenario, if I'm hearing you correctly, you had the following thought process:

      Spent $10,000 on an unknown plumbing issue
      Asking yourself, "should I have bought this house?"
      Knowing what I know now, that there is an unknown $10,000 plumbing issue, would I still have bought the house?

      It sounds like your answer to this question is both Yes and No lol (you say you would have done something "different", but I don't know if you mean you wouldn't buy the house). You don't explicitly say, I would not have bought it, or I would have. It is important to be very granular with this experiment. If there isn't a clear answer when you ask yourself the question, it usually means you're not actually suffering from a sunken cost fallacy.

      An easier scenario to think of in your situation, or one adjacent to it would be the following:
      You find a plumbing issue in your house, you decide to repair it yourself but are not skilled in doing so, you continue to try to repair it to no avail, you eventually ask yourself, should I keep going or hire a professional/replace the whole object?

      Then you go through the process:

      Knowing what I know now, "that I cannot repair this properly, would I have made a different decision?" The answer is yes(you would have just replaced the object/called a professional), and thus you would stop trying to repair the thing, and would actually cut your losses and hire a professional/buy a new object.


      To your second point,

      It is very possible to end up in a position where logical decisions at every step of the process end up putting you in an illogical position from an outside perspective.

      That is a fair criticism, and the experiment is not meant to be a be all end all decision maker, it's merely a thought process to illuminate to someone when they may be holding on to something for too long for reasons that are not in their best interest.


      Re: The dollar auction, as a complete tangent, this is very interesting, and it's funny how much psychology we learn through economic scenarios. I suppose it really highlights the two sides of being human - thinking we are computers, but also being emotional. I initially thought the obvious answer to the dollar auction would be bidding 99c immediately, but since you lose if you're the second highest bidder, that negates this strategy, as someone could obviously bid $1.00. It is very bizarre to me when the problem gets into people bidding $1.05...

      4 votes
  2. [3]
    skybrian
    Link
    You’re misunderstanding the sunk cost fallacy. The relevant question to ask is, “would I make a different decision if I got it for free?” For example, buying expensive tickets to a show and then...

    You’re misunderstanding the sunk cost fallacy. The relevant question to ask is, “would I make a different decision if I got it for free?”

    For example, buying expensive tickets to a show and then getting sick. If the tickets were free you wouldn’t go, but since you paid a lot for them, you drag yourself there and have a miserable time.

    More generally, it’s paying too much attention to history - the time and effort you put in - instead of deciding what makes sense based on where you are now. Your previous effort should sometimes be ignored as irrelevant history. (It’s not always easy.)

    13 votes
    1. [2]
      Carrie
      Link Parent
      I feel that you cannot always ask the question, “would I make a different decision if I got it for free?” Because not all decisions have a spent portion that is monetary. For example, in my...

      I feel that you cannot always ask the question, “would I make a different decision if I got it for free?” Because not all decisions have a spent portion that is monetary.

      For example, in my example about taking a job in another country, you can't ask yourself, should I find another job if I got my job for free? Would I take this job if it was free? I personally can't see how you would re-word the question to apply to the sample I gave above, which I'm now listing below:

      Consider you moved to a new country to start a new job, but the job really isn't what you thought it would be. You hate going to the job everyday, every aspect of it. However, you feel compelled to stick it out, for various reasons. At some point you ask yourself, "knowing what I know now, that this job is not the right fit for me, would I make the same decision?" You answer "No", and thus realize you're in a Sunken Cost Fallacy situation, and you should make steps to removing yourself from that job.

      If you can show me how to use your question, "would I make a different decision if I got it for free?" in relation to the scenario I outlined, I'd be interested to hear it.

      2 votes
      1. skybrian
        (edited )
        Link Parent
        I think the question would be something like “if I hadn’t gone through so much effort to move here and get this job and instead it were just handed to me, would I still want it?” If you’ve moved...

        I think the question would be something like “if I hadn’t gone through so much effort to move here and get this job and instead it were just handed to me, would I still want it?”

        If you’ve moved somewhere and you’ve made friends and other ties, and it’s a well-paying job, giving all that up and starting again somewhere else would be a real cost, so it’s not an example of sunk cost fallacy if you’re unwilling to give that up.

        But then again, it seems like it’s impossible to answer without also thinking about alternatives. The alternative to going to a concert is staying home. What’s the alternative to a job? Another job?

        An example of the sunk cost fallacy would be if you get a better job offer that you’re unwilling to take because you put so much effort into getting where you are now. Sometimes people realize after switching jobs that they should have made a change long ago. But it can be difficult to say in advance.

        The sunk cost fallacy is related to what people are getting at with the saying “water under the bridge.” You often can’t change the past to get back the time or money you already spent on a failed effort. But if it didn’t entirely fail then you might still be able to recover something.

        3 votes
  3. Lia
    Link
    That's indeed a good way to gauge the situation. I've been using something similar to see if it's still a good idea to keep engaging with my friend/lover. He treats me beautifully and appreciates...

    That's indeed a good way to gauge the situation.

    I've been using something similar to see if it's still a good idea to keep engaging with my friend/lover. He treats me beautifully and appreciates me, and is overall a delight, but he doesn't want a relationship. I do want one with someone, eventually.

    People have warned against giving too much of myself or overextending my stay, so I've started asking myself the following:

    If everything ended tomorrow, would I regret that I was here today?

    If the answer is yes, then I should end things. As well, if I would regret something I did or said, then I shouldn't do or say that thing.

    It's been working very well and has kept me emotionally safe for a few years already.

    4 votes
  4. [2]
    atchemey
    Link
    I think this is a good starting point but incomplete. I have a dilemma, where the answer is I would have made the BIG decision the same, but subsequent decisions would have been no. Things can...

    I think this is a good starting point but incomplete. I have a dilemma, where the answer is I would have made the BIG decision the same, but subsequent decisions would have been no. Things can start as a "yes" and then edge towards "no" over time, and that's where it's hard. This falls into ambiguity which is difficult to have a simple heuristic.

    Good on you nonetheless for trying to help others!

    4 votes
    1. Carrie
      Link Parent
      I think that's a fair assessment, and I appreciate your input.

      I think that's a fair assessment, and I appreciate your input.

      1 vote
  5. kacey
    Link
    I’m glad that this has been a helpful tool for you! It’s a little more difficult for me personally: I have a hard time putting myself into a previous mindset, so I wouldn’t have much confidence in...

    I’m glad that this has been a helpful tool for you! It’s a little more difficult for me personally: I have a hard time putting myself into a previous mindset, so I wouldn’t have much confidence in running the hypothetical of “would I have made the same choices”.

    I’m not sure how many choices in my life are fallacious at the moment, but I often reevaluate decisions based on whether the cost to quit + find an alternative is less expensive than the cost to persevere — hopefully that has kept them to a minimum. Running that dispassionate analysis has never felt very difficult, it’s following through with the conclusions that has been emotionally trying.

    2 votes