Sunk Cost Fallacy Examples
You’ve heard of a sunk cost right? The sunk cost fallacy? No? Well that’s okay, most people I talk to haven’t. I wrote a post not too long ago called “What is a Sunk Cost – And What It Means To You”. <— If you haven’t read it you should, it’s pretty good. In general I talk about what a sunk cost is and how it can affect people. It’s actually a business term but it’s easy to apply to everyday life. In this article I thought it would be a good idea and expand a bit to show sunk cost fallacy examples. Let’s take a look shall we.
Sunk Cost – A Review
Always a good idea to review the basics. So let’s take a look at what a sunk cost is. This will help us get a better picture of the sunk cost fallacy examples. The term sunk cost has it’s origins in accounting. Remember that as the base as we move forward. According to Investopedia:
“A sunk cost is a cost that has already been incurred and cannot be recovered. A sunk cost differs from future costs that a business may face, such as decisions about inventory purchase costs or product pricing. Sunk costs (past costs) are excluded from future business decisions because the cost will be the same regardless of the outcome of a decision.”
Let that sink in a bit. What it boils down to is that any cost you’ve already spent cannot be recovered. Therefore it should not be considered in the decision whether or not to move forward with something. In other words, the past is in the past. Don’t let the past affect your future decisions.
Hopefully that makes sense. To get us to our sunk cost fallacy examples let’s move from what a sunk cost is to what is the sunk cost fallacy.
The Sunk Cost Fallacy
In order to full grasp and relate to sunk cost fallacy examples let’s look at the sunk cost fallacy. It’s more common that you think. Here’s a quote from an article written by Jamie Ducharme for Time titled “THe Sunk Cost Fallacy is Ruining Your Decisions: Here’s How: earlier this year. The quote is “The sunk cost effect is the general tendency for people to continue an endeavor, or continue consuming or pursuing an option, if they’ve invested time or money or some resource in it,” says Christopher Olivola, an assistant professor of marketing at Carnegie Mellon’s Tepper School of Business and the author of a new paper on the topic published in the journal Psychological Science. “That effect becomes a fallacy if it’s pushing you to do things that are making you unhappy or worse off.”
Hopefully that makes sense. Boiled down it means we continue to do things EVEN IF WE DON’T WANT TO because we’ve already invested something in them. In the accounting/business sense it’s usually money. For us individually sometimes it’s money but in many cases it’s about time invested. You and I don’t want to give something up or stop doing something because we’ve invested our time in it.
Examples are everywhere.
Sunk Cost Fallacy Examples
Example #1: The dating game (or marriage as well) is a classic example of the sunk cost fallacy in action. The longer you’ve dated someone or been married to someone the harder it becomes to break it off. Even if it’s not a healthy relationship. Every month that goes by makes it harder and harder. We don’t want to admit to ourselves that we’ve “wasted the time”.
Example #2: The food I ordered. Since I paid $30 for my fancy steak dinner I better finish it! Otherwise I’ve wasted the money. Then I force myself to chew it all down and I feel miserable for the rest of the night. The reality is I’ve already spent the money for the meal. If I only eat half of it I’m not getting $15 back.
Example #3: The movie I’m watching. I’m 30 minutes into a movie that sucks. Since I’ve already spent 30 minutes of my life watching it I better finish it. Even if I feel my brain cells dying because the acting is so horrible. Guess what bro? You aren’t getting that 30 minutes of your life back no matter what. Why waste another 90 minutes?
More Sunk Cost Fallacy Examples
Example #4: The class I don’t like. So you paid $500 to go to a class or a seminar you thought would be great. After attending a few times you realize it’s not at all what you thought when you read the description. Yet you keep going because you already paid the money for it. Guess what pal? That $500 is gone, let it go. Now all you’re doing is wasting your time continuing to go to the class.
Example #5: That lemon of a car I bought. I got a great deal on a car for my daughter, I only paid $2,000! Okay so I had to put new tires on it and that cost me $700. Then the alternator had issues and that cost me another $800. Now it’s leaking oil and the mechanic said it’s gonna be $1,500 to fix it. You see where I’m going with this right? My great deal is a sinkhole, stop throwing money into it. Admit defeat.
Example #6: The project I started. Sometimes we all get excited about doing a project. Maybe it’s finally getting our CD’s (whoever has those anymore) categorized and all neat like. Maybe it’s starting to learn how to home brew. Whatever, we get a burst of inspiration and decide we are going to do this! We buy the stuff and dive right in. Then we taper off. Then a few months have gone by and we look at the messy area where our project is in and we say we have to complete it. Why? Because we started it! We like to finish things. Another sunk cost. Secret tip, you don’t have to finish it.
How To Fight the Sunk Cost Fallacy
Now that we’ve looked at some sunk cost fallacy examples let’s think about how we can fight it. It’s difficult because we are emotional creatures. We get attached to our decisions. We like to finish what we start, at least most of the time. I know I sure do. Here’s how to fight the sunk cost fallacy.
Be aware: Being aware of anything is the first step. Now that you know what some sunk cost fallacy examples are, be aware when you face one. When you order that gigantic meal tell yourself you are fine if you don’t finish it. You’re going to go for it anyway!
Being wrong is okay: A huge reason we get stuck in a sunk cost fallacy is because we don’t want to admit we were wrong. Like I don’t want to admit I bought a lemon of a car. Tell yourself everyone makes mistakes, and it’s okay to be wrong. I’ll start. I am wrong about at least one thing every day. See, that wasn’t so tough.
Consider future value: If I’m halfway through a crappy movie and I don’t want to finish it, I’ll tell myself to think about what I could do with the hour I gain back. Same thing with investing money in something. If I have a choice to throw more money at it tell myself to think about what else I could buy with that money. You can’t spend money twice. Although it would be awesome if you could.
There are no wrong choices: Sometimes we make stupid choices but there are no wrong choices. If you tried something and you didn’t like it guess what? You’ve just learned something that you don’t like. That’s just as important as learning what you do like.
Be smart: Smart people know when to quit. They realize there’s a point in time to stop doing something that isn’t working, no matter what they’ve invested in it. Whether that’s $1 million or 20 years on a relationship. Know when to fold em.
Conclusion
Well, we’ve taken a long look at what a sunk cost fallacy is as well as sunk cost fallacy examples. It’s easy to see how we get absorbed in continuing to do something even if it isn’t working for us. It’s how we are wired. We have to consciously be on the look out for when the sunk cost fallacy rears it’s head. And be aware of our alternate choices.
Although money doesn’t grow on tree’s it is replenishable. Time on the other hand only goes around once. Use it wisely my friends.
Avoid the sunk cost fallacy,
Mat A.
I am currently in a business situation where this article totally made sense to me. We bought some software a while back at a huge cost, and then that ended up forcing us to upgrade a bunch of our computers to newer versions of Windows and Office, and it seems like ever since we made that initial investment, we’ve just been finding out that we need more and more stuff to make this work. Then, despite all the work to get it in place, it just isn’t performing like we thought it would. Totally dug this article. This is exactly what I was trying to explain to my boss, but it’s hard to let go of the sunk cost feeling. I’m going to show him this and see if it rings a bell.
Brandon,
Thanks for the comment and I’m glad it was timely. Sunk cost is incredibly prevalent in business as your examples suggests. It’s interesting when applied to our everyday personal lives as well. Good luck with your boss.
I’m not a man, but I read your website so I can help my husband and maybe win an argument or two. This sunk cost fallacy reminds me of a conversation that we recently had. My hubby has a “never ever quit” attitude, so he will keep going with things even though they are making him absolutely miserable and there is no payoff for the agony in the end. All because he simply doesn’t believe you should ever quit anything.
So, we ended up having a huge discussion where I tried to make him understand that there are times when quitting is the best thing you can do. I’m going to revisit that conversation with him now that I’m armed with this fallacy information. I think I’ll have him read your site…maybe he’ll take it more from another man than his wife! Thank you for solid information that we can all use to make better decisions.
Theresa,
I’m glad you enjoyed the article and it resonated with a situation with your husband. It is actually very relevant to that situation! Maybe if he see’s he’s not “winning” anything by never quitting in a different light it might help. Good luck!
I have never heard of this term before but this has happened to me a lot. I put in too much money for little or no outcome. The only thing is that I have trouble coping with the defeat of losing out on money or different opportunities. You can actually turn every situation into a positive one! This seems to be a small step in the direction of living a happier life. I do know men have a harder time with defeat than women. That’s why they are married, so we can lift them up with something doesn’t go their way!
Hi Rachel,
Thanks for the notes – great to hear from you. It is a very interesting topic don’t you think? The money situations is where it’s easy to see why we don’t want to “give up” and throw in the towel. It’s so similar to admitting defeat. But many times it’s the right thing to do. That money is spent and never coming back.
Hey Mat, great article here and a psychological interesting topic. At first I got confused with the term “sunk cost fallacy”, but your examples explained it best. In my opinion, the strongest force is that we don’t want to be wrong. It’s always fascinating to me, that once somebody buys something, it’s like he created it himself. So, he’ll rather convince himself that it’s e.g tasty (when actually he finds it disgusting) before sending it back. Nowadays, we can return many items and get a refund. Still, only few people does it. I’ve recently took on the habit to not finish books that bores me after the first 10 pages. Feels good 🙂
Hi Felix,
I’m glad my examples make sense. It is a bit of a head scratching topic until you relate it to things that affect us every day. For the record I agree with you. I think most of us don’t want to admit that we are wrong or made a mistake so we just keep doing something or spending money on something. Guess what? It’s okay to make mistakes!
Hi Mat
I had to laugh reading your article. It is so pertinent in many areas. I was thinking about marriage / gambling and several other areas. Then you come up with your examples; marriage. Spot on. I think it is true of friendships a swell. Sunk cost friendships can be quite damaging. Hanging in there just because you have been friends for a long time.
Gambling or trading where the trade has gone wrong and people stick with their bad decision, avoiding admitting it has gone wrong.
This is really food for thought and I was made to think, as well as to laugh at the fake sunk costs. That means I will remember it.
Great article, Mat. By the Way, are you a poker player? formidable if you are.
Thanks so much for the comments! I am not much of a poker player actually but that’s great to hear. Glad you enjoyed the article. It’s so easy for all of us to get stuck in situations because of what we’ve invested.
” I am wrong about at least one thing every day. See, that wasn’t so tough.” This really got to me because of how real and honest it is. You are uncovering not only a great business principle but a great life principle because just like humans are hardwired to have answers no matter what, they are hardwired to finish things regardless if they like them or not.
As someone who recently got into practicing presence through meditation, I’m glad you brought up awareness as the first step to stop a sunk cost. Awareness is the way to change our behavior so naturally it will help correct a lot of things we are doing that we don’t like. Bravo.
I really appreciate these points “it’s okay to be wrong” and “there a re stupid choices but not wrong choices” because they bring the humility back to the human perspective that can be so easy to lose because we are also hardwired to always want more than what we have.
I like the overall message here which is to be smart enough to put yourself first and know when to cut your losses. Simple and powerful idea that I will be sure to keep in mind from here on out and with everything I do. Thanks for the great lesson and post!
—Francesco
Thanks so much for sharing your thoughts Francesco. Awesome to hear you’ve gotten into practicing presence through meditation, that’s such a healthy habit. I really do think there are no such things as wrong decisions. If we try something and we don’t like it then guess what, we learned something! Thanks for the great words.