The Sunk Cost Fallacy

A while ago, I worked at a law firm. We did a lot of trial work and would often find ourselves having to convince the opposing side to settle the lawsuit before going to trial. One of the main reasons that we would use to argue for this was that trial is costly after all, you have to hire experts, pay for the court reporter and both clients have to take the week off of work while the trial is happening. This was a hard argument to sell at times because so many times, people felt as though the suit had progressed so far that they should see it through to the end. They had fallen prey to the sunk cost fallacy.

The sunk cost fallacy is what makes us stick to a not so great decision once we’ve made it. We feel invested in a decision even though we can see we would be better served by making a new one.

It can be hard to admit that we made a decision that isn’t working out and even harder to acknowledge that the resources that we expended are gone. This is what leads many people to settle into lives that do not sync up with their goals. They become so focused on finishing what they started, (after all, they made it this far right?) that they never stopped to think if it would be the best move overall. In the case of the lawsuits, it was tough for many people on both ends to stomach the result. Settlements often require the plaintiff (person who files the lawsuit) sign a release in which the defendant (person being sued) does not accept liability for the event and ends the lawsuit. In other words, it says that you’ll get the settlement, but I don’t agree that I did anything wrong. There are legal reasons for this, of course, but there are people who are emotionally invested in someone admitting that they did something wrong and have issues signing the release papers.

In this instance, the emotion of pride would be a sunk cost.

I explain this because it is vital to realize monetary cost is not the only cost you can sink into a plan. You can sink your pride, sense of self, identity, as well as money into making a decision that no longer suits your goals.

The first step to overcoming this fallacy is to analyze the situation at hand to discover what the logical next steps are and if they align with your goals. In the example of a lawsuit: one would look at the money that goes to the lawyers and the amount of time the suit would continue to take from their life. Is the extended time and money worth the offer? This is not about which side is right, but rather understanding if a compromise which ends the suit is worth it. In many cases, it is.

I’m not trying to downplay the factors of this, because they are real. Like many people, I have done silly things to not lose face (a sunk cost). I have wandered around aimlessly because I didn’t want to ask for directions and suffer the loss of my pride.

I now know something essential about combating this that I’d like to share with you: very few people, if any care.

What do you mean people don’t care? My parents would be devastated if I (fill in the blank)!

Well, most people don’t actually care about the process long term. You may have people in your life that would say something if you shifted careers, but the fact is most people will not be invested as long as the long term turns out okay (psst… you get to help define okay). Parents, siblings, spouses, etc., will all probably chime in if you are making a significant change in your life but the fact is once they adjust to the new status quo most things should go back to normal. Explaining that the path is simply not where you want to be may be difficult because others are stuck in the sunk cost fallacy, but that can change as soon as you sink cost into another venture.

People are more invested in where your story is going than where it is not. Once you have changed your path to align with your goals, you will find that people settle back into the comfort of knowing where your story is going and leave it at that. So next time you’re considering sticking with your plan think it through: are you doing this because the next steps make sense to you or are you sticking with it because you’ve “come this far”?

© Mary Ann Linares

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