Let Bygones Be Bygones: The Sunk Cost Fallacy
A couple waited months for a movie to be released. They absorbed the pre-launch media coverage to the brink. They stood in a long queue to get expensive tickets for the first show. Finally, the day arrives. Half an hour into the movie, the man whispers, “It's a waste of time. Let's leave.” The lady responds, “After spending so much time and money? We can't leave.” The man says, “Let Bygones Be Bygones.” The lady goes back to watching although she knows deep inside it is a waste of time. This is a trap (thinking error) known as the 'Sunk Cost Fallacy'. A sunk cost is a retrospective cost that has already been incurred. It's gone. It can't be recovered. Here's another example.
You've finished your HSC or A Levels. You're choosing a university. You worked very hard investing lot of time and effort. Your hard work paid off. You can go to any one of the top five universities of the country. You weigh all options. You decide to go to University A. The remaining B, C, D, E is the set you sacrificed. Your classes start. Two semesters later, you find, option A wasn't your cup of tea. You chose to go with A, when all five options were available. You can't go back now. It becomes almost impossible to say to yourself like the first example, “Let Bygones Be Bygones.”
A sunk cost is like throwing away good money after throwing away the bad. We incur a loss in the present, yet we tend to stick to the past decision (which seemed like a good idea at the time when we made it) that brought us to this present loss. We tend to overlook the most powerful currency of all -- time. We also tend to forget that time spent isn't the same as time invested. When we make a decision, we think about our expectations of future costs and benefits. We seldom make decisions in the present where we calculate what has happened in the past (the bad decision to watch the movie or going to University A). Evolutionary psychologists provide one explanation.
At school we're taught “a bird in the hand is worth two in the bush.” Why are we afraid of losses? Why do we value losing something more than gaining something else? Fifty thousand years ago our ancestors were hunter-gatherers. They would hunt in groups. One stupid mistake meant certain death. Reckless people would either lose their lives in the hunt or be excluded from the group. Hunting another bird (or larger animal in this case) while having one in the hand would be costly in terms of regrouping everybody and also very dangerous. This is why we've been taught even before the dawn of recorded history to be content with what we have. Our averseness towards losses has been engrained into our genes. When we fall into the trap of the sunk cost fallacy, we tend to overlook that the time spent thinking it is an investment is really a disinvestment. Our averseness to loss prevents us to see through the lines and think clearly.
What's the solution, if any? Have you ever been in a relationship that's not working? You can't (don't want to) get out because of the time and effort you put in? Group leaders find it difficult to retreat from a decision once made after later finding out it was a bad decision at the time. There's no tailor-made solution to problems in life. Our evolutionary development may make us fall for the sunk cost fallacy. Social development, however, teaches us, “don't carry on with a dead war.” Live in the present. If you don't live in the present the scars of the past become more and more exposed. They lead to a defeat more than a victory. Using common sense and moving on instincts, is probably the best way out. “Let Bygones Be Bygones.” It's not an easy decision to make, but in hindsight could be more pragmatic than the rational decision taken at the time.
Asrar Chowdhury teaches economic theory and game theory in the classroom. Outside he listens to music and BBC Radio; follows Test Cricket; and plays the flute. He can be reached at: [email protected]
Further Reading: “The Art of Thinking Clearly” by Rolf Dobelli. Sceptre Books, UK.