Ok, a totally new topic this week. My original title for this was “Throwing good money after bad – Sunk cost fallacy – How do we know when to quit?” I decided that the title needed to be shortened. This topic made my list after a Sunday morning skype conversation about sunk cost fallacy and how easy it is to fall into even when you know what it is.
Firstly for those who don’t know what I’m referring to:
“Individuals commit the sunk cost fallacy when they continue a behavior or endeavor as a result of previously invested resources (time, money or effort) (Arkes & Blumer, 1985). This fallacy, which is related to status quo bias, can also be viewed as bias resulting from an ongoing commitment. For example, individuals sometimes order too much food and then over-eat ‘just to get their money’s worth’. Similarly, a person may have a $20 ticket to a concert and then drive for hours through a blizzard, just because she feels that she has to attend due to having made the initial investment. If the costs outweigh the benefits, the extra costs incurred (inconvenience, time or even money) are held in a different mental account than the one associated with the ticket transaction (Thaler, 1999).
Arkes, H. R., & Blumer, C. (1985), The psychology of sunk costs. Organizational Behavior and Human Decision Processes, 35, 124-140.
Thaler, R. H. (1999). Mental accounting matters. Journal of Behavioral Decision Making. 12, 183-206.”
This definition was one of the clearer ones I found on the internet.
So what is the impact of this? For me I find myself having to stop and really think; am I just “throwing good money after bad?” and it isn’t always money, it can be time or effort. I think we all have those things that we continue at, long after we really should have given up just because we have invested so much time, money and/or effort into the “thing”. (A number of personal relationships spring to mind for me plus a couple of films that I really should have walked out of – Thin Red Line; Map to the Stars). The waste of extra time, emotional effort, more money!
It is an interesting thought process – I can guarantee that any of you reading this can easily think of something that you kept at long after it should have been relegated to the bin. So the big question is how does one NOT fall into this thinking pattern? This is the hard part, as the studies that have been conducted on this do seem to imply that it is hard wired into us. This was a survival instinct – like eating food when it was available. Unfortunately our brains haven’t caught up to our modern world. We tend to make decisions by looking backwards rather than looking forward – i.e. we look at what we are going to lose rather than what we are going to gain.
I’ve decided to try and stop and think about my decisions over the next few weeks and see if I can think about the gains rather than just the losses when I make decisions. I’ll report back in a future blog.
Until next time
Current weight – 76.9 kg
Back to eating normally after holidays and the weight is going 🙂