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Sunk Cost Fallacy: Not Quitting When It’s the Most Rational Thing To Do

Sunk Cost Fallacy: Not Quitting When It’s the Most Rational Thing To Do
Taken from Pei Ying CHUA’s LinkedIn Article published on Economics In A Nutshell

3 Ways to Escape From the Things Ruining Your Life

I’m using the Readwise application to remember the highlights from my past readings. A few days ago it reminded my highlights from a post on “Sunk Cost Fallacy” written last year by Sinem Günel.

She wrote that sometimes, we even stay in a relationship or a job that can’t nourish us anymore, just because we’ve already invested so much time into it. And the part that I have highlighted was suggesting this;

The time you have invested in a bad relationship or career is already gone. You can't do anything about it anyway.
But you can indeed choose how to spend the next years of your life: By sticking through it, or screwing it and finding the next best option.
Stop valuing sunk costs and instead focus on opportunity costs: If 30 minutes are gone, they’re gone. Don’t spend another 10 minutes watching a lousy movie, instead focus on the next best option.

I was experiencing exact same situation in one project that I was supporting for a few months, but I didn’t realize that I’m going through this until I looked at the concept again. It made me realize and stop working on the project that’s draining my energy and time.

What is the Sunk Cost Fallacy?

The sunk cost fallacy 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.

This effect is not always a bad thing — after all, perseverance is key to success. However, the sunk cost effect becomes detrimental when it pushes people make stupid decisions that cause them to become even worse off. That’s when the effect becomes a fallacy (a failure of reason).

Too often, we choose to stick it out through awful things instead of getting out there and living the life of our dreams. We expect others to value our time and don’t let us wait for appointments, but we waste hundreds of hours every year doing things we don’t enjoy.

In reality, we feel compelled to press on in order to make those previous investments “worth it”. We continue to pour more money, time, and energy into the commitments we’ve started even when our limited resources would provide better returns elsewhere. To make matters worse, society tells us the Sunk Cost Fallacy is a virtue. We’re told that quitters never win. We’re told we need grit and resilience. We equate walking away with failure when it can actually be the most logical course of action.

The Sunk Cost Fallacy keeps us from spending our time well in ways big and small, from trudging through a bad book just because we started it to continuing in a career that makes us miserable because we’ve already invested years of our lives and thousands of dollars on a degree. The fact that you’ve invested one year or two years or even ten years of misery and discontent into a career is not a good reason to continue being miserable for the next three decades. And yet, that’s exactly what the Sunk Cost Fallacy leads us to do.

Psychologist Amy White, PsyD, explains what this thought process is and shares some tips for how we can avoid letting it make our lives more difficult. Dr. White explains.

leave jobs

She adds that we tend to do this because we view these things as important resources that need to be protected.

“Just like money, our time, energy and headspace are all valuable and limited resources — and we try to protect them. But sometimes, we end up losing even more in our efforts to avoid ‘wasting’ these precious commodities,” she says.

What you can do about it:

Artwork by Anaïs Pirlot-Mares taken from Doist Blog

1) Make opportunity costs explicit. Every decision has two costs. The first is the actual amount of money, time, or energy you invest. The second cost is the benefit you would have gotten from the next best alternative. This hidden price is called the opportunity cost and we’re much more likely to ignore it when we make our decisions. For example, when considering a career change, we tend to focus on the money we’d be giving up. We fail to take into consideration the joy and satisfaction we’re currently missing out on by staying. The first step to counteracting the Sunk Cost Fallacy is making clear what alternative we’re giving up by continuing to invest more time, energy, and money into what we’ve already started.

2) Do a quarterly inventory of your commitments. We often fail to adjust course because we never reach a crossroads where we have to decide whether to keep going or walk away. You need to create your own decision moments where you take a step back and decide if continuing a goal or commitment makes sense. Set a specific timeline to periodically map out the big picture of where your time is going and where you want it to go. To make the opportunity costs explicit, visualize your time as a pie graph so that you can’t add anything without taking away from something else.

3) Ask yourself “If I were just starting this endeavor today, would I still do it?”. If the answer is no, then the logical thing to do is cut your losses and walk away. Sometimes, quitters win.

I asked myself if I start to do this again today and the answer was a clear no, so it was time to walk away.

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