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Sunk Cost
Sunk cost fallacy is a cognitive bias refers to the phenomenon where people continue to invest resources (e.g., time, money, effort) in a failing project or situation in the belief that they have already invested too much to quit.
Reasons for sunk cost fallacy:
- Confirmation bias: The tendency to favor information that confirms our existing beliefs and ignore information that contradicts them.
- Avoidance bias: The tendency to avoid situations that make us feel uncomfortable or cause us to experience negative emotions.
- Ego depletion: The feeling of satisfaction we get from completing a task or achieving a goal, even if the task is not particularly enjoyable.
Examples of sunk cost fallacy:
- Continuing to invest in a stock or investment that is losing value.
- Spending money on a movie ticket even if you don’t enjoy the movie.
- Continuing to maintain a relationship with someone who is mistreating you.
How to overcome sunk cost fallacy:
- Identify your sunk costs: Make a list of the resources you have invested in a project or situation.
- Consider the opportunity cost: Weigh the potential benefits of abandoning the project or situation against the costs of continuing to invest.
- Be willing to walk away: If the project or situation is not worth continuing, don’t be afraid to cut your losses and move on.
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