Sunk Cost Fallacy SHORT ESSAY NOTES:
Define The Sunk Cost Fallacy:
Integrate the reading to support your definition.
Show how the fallacy works; what are its causes? What are the mechanisms at work?
What are its dangers?
Argue how we can counteract The Sunk Cost Fallacy:
What can a person do to become more aware of it?
What should a person practice to minimize its effects?
What are specific strategies, habits of mind, to directly manage oneself away from The Sunk Cost Fallacy?
In his essay, McRaney outlines the main drivers to the Sunk Cost Fallacy:
o you must first understand how your fear of loss leads to the sunk cost fallacy (para 4). “Fear of loss” is one of the drivers of this fallacy. Although it sounds
simple to observe, it’s actually harder to observe in ourselves because the fear of loss is within us.
o “You tend to focus more on what you may lose in the bargain than on what you stand to gain” (para 6). This particular driver of the Sunk Cost Fallacy is
subtle. It’s a shift between focusing on not losing to focusing on what “what you stand to gain.” Focusing on the future gain is more about the feelings of how
good the experience will be when attained, and how that is more motivating than negating the feeling of present loss.
o “Your loss aversion system is always vigilant, waiting on standby to keep you from giving up more than you can afford to spare, so you calculate the
balance between cost and reward whenever possible” (para 8). This balancing act between cost and reward is underlying much of thinking and actions. We
are easily led into the Sunk Cost fallacy because we are often already tilting toward worrying about the costs and pain of those costs, which lead us to the
Sunk Cost Fallacy.
o “As an emotional human, your aversion to loss often leads you right into the sunk cost fallacy” (para 11). Emotions, more pointedly, the fear of feeling the
pain of loss, is a huge driver right into the Sunk Cost Fallacy.
How do we assess value?
o “You see something as a good value when you predict the pain of loss will be offset by your joy of gain” (para 9). This reveals the cost/reward calculation
that we’re always doing in our minds, many times in the background of our choices. If we brought the cost/reward balancing calculation to the forefront of
our minds we might have a better chance of not falling into the Sunk Cost Fallacy.
o Problem: if something negates that value, we’re left with a quandary. Should we take the loss and move on, or do we override the feelings of loss and suffer
through? McRaney points out that we often do not face the loss of value; we soldier on and suffer. For example, he gives the scenario experiment about
buying tickets to a movie that you realize early on isn’t worth sitting through, but you sit through anyway. This is the Sunk Cost Fallacy at work. Rather than
face and feel the hurt of the loss of value, we push through it to “make it worth it.” This can lead to delusions, thinking the movie is better than it was, or
simply denying altogether that the time and money was lost. We resist admitting defeat (loss), especially when it comes to time and money spent. If you
were to admit the loss of time and money early on, and instead focus on how good it will feel to be rid of the unsatisfying experience, you will break the spell
of the Sunk Cost Fallacy and be able to focus on the another better experience that awaits!
How to override the Sunk Cost Fallacy?
o The fallacy prevents you from realizing the best choice is to do whatever promises the better experience in the future, not which negates the feeling of loss
in the past. (para 14). It might seem obvious, but when it comes to emotions and fear of loss, it can be a challenge to shift one’s focus from negating losses
towards focusing on a better future experience. It means facing the pain of the loss first, working through it, then moving on.
o The experiment about buying a $100 ski trip that was just okay and buying a $50 ski trip that promised to be much better highlights our tendency to the
Sunk Cost Fallacy.
Over half of the people in the study went with the more expensive trip. It may not have promised to be as fun, but the loss seemed greater. (para 14). Upon
reading this, it seems it would be an easy choice! Pick the better trip, or course! But because the not-as-good trip was twice the cost, it kept people tied to it
rather than admit and feel the loss, then move on to choose the cheaper and better trip. Odd indeed!
Why would half the people choose the less fun trip over the cheaper more fun trip? That sounds insane, right?
It’s because we have a tendency to want to negate the pain of losses in the past. The way to counteract this would be to work on focusing on the “what
promises the better experience in the future.” What this means is that there’s always a tug of war within us between negating past losses and focusing on
good experiences in the future.
Simply put, the more time and money you invest in something, the more you desire to keep doing that for fear of the feelings of loss you will have if you admit
it’s not worth it anymore. So, you just keep pumping money and time into it. Strange phenomenon, yes! Do we all do it in some way or another? Of course we
do! No one is immune to the Sunk Cost Fallacy. As McRaney notes about playing the game Farmville:
o “You continue to play Farmville not to have fun, but to avoid negative emotions. It isn’t the crop you are harvesting, but your fallacies” (para 23).
o The odd thing hidden from our minds is the impossible notion that drives this fallacy: we think if we keep sinking money and time into something, then we
can get that money and time back. Of course, when we see this notion in black and white, we see the logical impossibility of it. But when it comes to
emotions, logic isn’t at play. And emotions drive behavior much more than we think. That’s why fallacies occur.
What can we do?
o “ As an adult human being, you have the gift of reflection and regret. You can predict a future place where you must admit your efforts were in vain, your
losses permanent, and when you accept the truth it is going to hurt” (para 30).
We have the ability to reflect. We can think through a situation amidst the swirl of emotions and denial of permanent loss.
Upon reflection we can see and feel the regret of lost time and money. This is where emotions can aid us. Rather than suppressing the feelings of loss, we
can face and feel them. That might be a motto for counteracting the Sunk Cost Fallacy: “Face and Feel the Loss.” What this does is break the spell of the
emotions that drive the illogical thinking: “If I pour more time and money into this losing thing, then I’ll retrieve the time and money I’m pouring into it.” But if
we face the loss, and feel the real pain of that loss, then that bursts the bubble of the Sunk Cost Fallacy. We can discern for ourselves what “efforts were in
vain,” and what “losses permanent.” It may hurt, but that’s the key; pain is the truth-teller. Pain points to what is the true loss. From there we can lick our
wounds and move on to something more worthy of our time and money.