Personal observations on life

Errors in thinking – Part 4

The Sunk-Cost Fallacy

When we have invested a lot of time, money and energy on something, that investment itself becomes a reason to carry on doing the activity, 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.

For example, some people continue in toxic relationships just because they have already invested a lot of time, money and energy.

This irrational behavior is driven by a need for consistency, because consistency signifies credibility. We find contradictions detestable and upsetting. If we cancel a project half way, there is a contradiction there: we are admitting that once we thought it was worth trying, and now we don’t. So we continue with the project even after realizing its meaninglessness.

Rational decision making requires us to forget about the costs incurred till date. No matter how much we have invested in something, it is only our assessment of the future that counts.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s