Sunk cost fallacy: what it is and how it aggravates the problems

Fallacies are cognitive biases through which reality is veiledly distorted, giving an appearance of plausibility to what is essentially uncertain or directly false. Almost all people have incurred them at some point, and/or have been "victims" of someone else's, at least at one point in their lives.

Most of the fallacies mislead third parties, but there are also some that only distort the truth. of the one who pronounces them, to the point that they curtail his ability to make the right decisions in a situation problematic.

In this article we will elaborate on the sunk cost or Concorde fallacy (in homage to an airplane created by the French government and that supposed enormous losses for this country), which has It has been the subject of much research into how it can condition the fate of those who fall into its networks.

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Basic principles of the sunk cost fallacy

The sunk cost fallacy It is perhaps one of the most common cognitive biases in the life of every human being.

. It is also known that, on many occasions, it has very serious consequences for those who commit it (as well as for their immediate environment). The convergence between its frequency and its potential harm make it an object of great interest for psychology, logic and even economics. And it is that, although we insist on believing the opposite, sometimes our decisions are far from being rational and sound.

A sunk cost is understood to be any investment that, due to objective circumstances, appears to be absolutely unrecoverable.. Such investment can be understood in temporary terms, as an important disbursement or as the satisfaction of what was once perceived as a basic need for happiness and/or self realisation. Thus, this concept includes any relevant effort from the past for which any expectation of return, cushioning or compensation has been diluted.

It is also known that the appreciation one has for what one has invested in (it can be a work project, a relationship, etc.) is directly proportional to the amount of personal effort required, in terms of emotional attachment or expectations of result. And in turn, it is well known that the more attached you are to anything, the more difficult it is to let go of it or abandon efforts to keep it afloat. Everything that is reviewed here is the foundation on which the sunk cost fallacy (or sunk cost fallacy) is erected.

The main problem with this fallacy lies in the decision-making processes in which it is found. involved that person or project to which our past efforts, sometimes titanic and constants. Despite the fact that there is no option to recover the investment that they involved, We continue to keep the past in mind when assuming alternatives for change for the present; since we usually refuse to lose everything that it cost in its day, or to liquidate the expectations that once motivated us to undertake what we would leave behind today.

With the incorporation of the loss, located in the past and completely unrecoverable, the decision-making process is conditioned by elements alien to rationality (understood as the balanced analysis of potential benefits and drawbacks both in the short and long term term). In this way, options aimed at obtaining positive things (a better job, a relationship that brings us more happiness or simply the cessation of some economic hemorrhage), but rather the final purpose will be to avoid something for which it is certainly already too late.

The consequences of this fallacy can be truly dramatic, and are often at the root of personal failure and financial setbacks. In fact, it is a concept that the economy has rescued to understand what lies dormant after the losses of its clients' assets. Next we will see how it can lead people to act, and why it often leads to situations that only deepen the problem.

What is this fallacy and how does it work?

In short, the sunk cost fallacy is a cognitive bias that consists of Give value to a relevant personal investment from the past, and obviously unrecoverable, to keep a project afloat whose expectations are very discouraging. In this way, the effort would be maintained due to the expectation of recovering what was delivered (money, time, etc.) without realizing that it is really something that will never return. In short, a refusal to give in to a threatening reality due to the fear that assuming the loss inspires us, and that can end up seriously worsening the situation.

Most of us have experienced in our own skin the difficulty of giving up, of giving up on something even though we are aware that it is a lost cause. It is actually about a harmful way to insist; who harbors the hope that a stroke of luck (or hitting the key) will change the situation diametrically and we are able to straighten the course in an ocean whose waves threaten to sink us under its unfathomable depths.

The sunk cost fallacy is a bias that prevents us from letting go of the past because of the emotional attachment we forge to it, even though it has no resonance for the present. Often it means keeping all efforts towards something that no longer brings us happiness. This happens like this because we become victims of an irresolvable dissonance: "I have invested a lot, everything I had, in this... I cannot abandon it now, because it has not brought me anything good yet."

Some mental health problems form around this fallacy, most notably pathological gambling. In these cases, the behaviors that are carried out (bets, games in a slot machine, etc.) generate losses and interpersonal conflicts of immeasurable magnitude, but the affected person maintains the habit because he has already "lost too much" and cannot afford to "give up his effort" without first having recovered at least a little of his investment. Obviously, the consequence is that the problem becomes increasingly worse prognosis, deploying what is known as "hunting" (asking money from acquaintances in order to recover from losses).

In addition, it has been described that this fallacy also affects us when the person who makes the efforts is an individual we admire or love. Thus, if a person we hold in high esteem asks us for something and we don't feel like it, most of we will tend to give in and will end up doing so (in compensation for the investment of others, which is not own). This is a familiar experience for a very significant percentage of the general population, and it implies the extension of this sunk cost fallacy to social dimensions.

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Some examples

In order to clarify how this fallacy or bias is expressed, we will see some concrete examples of different forms that it can take according to what has been previously referred to.

1. a ruined project

Felipe was young, and as such he burned with the desire to carve out with his own hands a future in which to live fully. For many years he juggled a (weekend) job with his training, saving as much as possible to build his own business one day. When he had just laid his hands on that diploma that he worked so hard to get, he was already fantasizing about the life he had always wanted for himself, building castles in the air about what his days would be like after so.

Unfortunately, Felipe was still unaware that despite such enthusiasm, Her project was going to be a failure that would lead her to lose everything she had saved during her youth.. More than a year had passed, and his restaurant's losses were mounting wildly, with no sign that the situation might change. Despite this, and since he had invested too much in the opening, he decided to ask some people he trusted for money in the hope of a comeback in the future.

2. Where are we going?

Vanessa and Miguel had been together for ten years, and in that time they had been through all kinds of situations. Lying on a cold bed, appreciating the darkness that slipped into the ceiling of the room, she meditated on her life with him. The first years were perhaps the most difficult, as her family did not accept the man she had chosen. as her mate, and she fought through thick and thin to stay by her side in the worst of all scenarios. possible. Despite this, he remembers that period as an adventure in which he learned a lot about what life was really about.

The sound of the crickets reached her ears, on that night that seemed eternal. And it is that I didn't love him anymore, actually it had been at least five years since I felt the same way. She hoped that the morning light would bring with it the strength she needed to articulate the words that would take them to the end of their shared path. She no longer made him happy, but she refused to believe that a story like hers would die in such a mundane and sad way. They had spent so much time with each other… she was full of doubts. One more night, like so many others before.

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3. A bad looking cake

It was a Sunday afternoon. Like other times in the past, Grandma Carlota brought for dessert what was once a fantastic carrot cake. Not surprisingly, she was a woman who had become well known for a recipe whose birth dates back to times that only she could remember. And it is that the years began to accumulate in her snowy hair, and she was unfortunately entering the winter of her life. But now, in the light of a dying autumn afternoon, the family ritual was about to begin. It was the only important thing.

The smile on her face was just as she had always been, as was the theatrical gesture with which she displayed her sublime creation. On that day, however, what everyone had been expecting with inordinate expectation turned out to be the most unexpected of horrors: this was not the cake of the night. grandmother, but rather a shapeless mass that looked dangerous to health, which emitted a strange odor that immediately made the dog escape between pitiful sobs of panic.

Silence fell. They all looked at each other first, and at Grandma right after, with her smile on her face. The usual smile. "How good looking!" someone lied somewhere. With trembling hands and their hearts pounding, fearing that this was "poisonous", they all gobbled down the customary generous portion. And it is that the woman, who always gave everything and had woken up early to prepare the food with love, she deserved it and a lot.

Bibliographic references:

• Kramer, A. (2017). Demystifying the "Sunk Cost Fallacy": When Considering Fixed Cost in Decision-Making is Reasonable. Journal of Research in Marketing, 7, 510-517.
• Friedman, D., Pommerenke, K., Lukose, R., Milam, G. and Hubermann, B. (2007). Searching for the Sunk Cost Fallacy. Experimental Economics. 10. 79-104.