Imagine you are reading a book. You are 100 pages in and you realize that you despise the book. It’s boring, uneventful, poorly written, and overall a waste of your time. The first 100 pages that you read – the effort, time, energy, and the opportunity cost of other things you could have been doing instead of reading those 100 pages – are sunk costs. They have already been incurred and you cannot recover them. You cannot go back in time and choose not to read those pages.
Now, you might say to yourself “I’ve already read these 100 pages, so I might as well finish the whole book.” Is this a legitimate reason to continue the book? Perhaps it is if you have been made aware that the book, in fact, gets a lot better later on. Your continued dedication to finishing the book all depends on whether you have the patience to defer putting it down until it starts to pick up. The question still remains, however, whether or not the initial investment of 100 pages justifies continued reading.
For a more fatuous example, I was getting ready for a formal event one morning. I did my hair quite well, shaped my beard, ironed my shirt, picked out a great tie, prepared my suit, and polished my shoes. I spent a considerable amount of time getting ready. To my disappointment, however, the event was canceled last minute due to inclement weather. I was all dressed up with nowhere to go. I reasoned that I should wear the suit for the rest of the day. I spent all this effort getting ready, I might as well get the value of my outfit, right? I proceeded to watch Netflix in a bespoke suit.
This seems pretty insane, but this kind of reasoning pervades everything from financial investments to romantic relationships. It’s called the Sunk Cost fallacy and it’s a huge no-no in decision making. Any costs that you have incurred, which cannot be recovered, should have no bearing on future decisions. It’s almost axiomatic why this sort of thinking is a fallacy, but nonetheless, it requires explaining.
It doesn’t make sense to continue incurring costs and depleting resources because costs have already been incurred. It’s an emotional decision, not a rational one. Sure, you can be mad at yourself for making mistakes. However, it is important to learn from them. Going forward, do yourself no favours by trying to rectify your mistakes with further investment. This fallacy reveals a lesson about personal development.