When to Quit and When to Keep Going (Sunk Cost Fallacy)

When to Quit and When to Keep Going (Sunk Cost Fallacy)

It’s Friday night. You want to go to the movies. You purchased the ticket two months ago. On the day of the event, you don’t feel like going out. You want to stay home and chill.

Now, let’s add more constraints and say that the movie ticket is non-refundable, meaning that you cannot get your money back, and also non-transferable, meaning that you cannot pass or donate the ticket to, say, a friend.

Do you go to the movie anyway? Just to avoid losing the money attached to the ticket? Remember, you don't feel like going out.

A lot of people would say yes, I would go out, I do not want to lose my ticket!

Most people are getting this wrong. The ticket is a Sunk Cost.

This is the most common example which usually helps with the sunk cost fallacy exemplification.

A sunk cost is a cost that has already occurred and simply cannot be recovered.

If you don’t want to lose the cost, there’s nothing else you can do except going and seeing the movie. The only one losing is you. The theatre still gets its money.

And, if we go deeper, the benefits of you staying home can cascade into multiple layers. Meaning that people who do actually go to see the movie will benefit from you not being there.

The place is going to be less crowded, more space, and possibly a better overall experience.

If you go to the movie, in this case, you are not helping anyone.

Understanding the Sunk Cost Fallacy will help you create a new gizmo, a new gimmick that you can use to generate better solutions.

And there are reasons to debate why this is not technically a fallacy, but I am not going into that yet.

This is why there’s an old saying that you should always focus on moving forward and not on the past.

And what I am trying to say is that you should not consider that wasting something is okay, as a general rule of thumb.

But developing a framework where you learn to avoid getting in a position where the most rational thing you can do is to waste stuff like our movie ticket example, is a mental tool you can use to reduce your waste-reduction engagements.

How do you fight it?

With the Sunk Cost Fallacy begging you to keep doing what you are doing because you have invested the energy, the time, and the money?

And the more you invest, the more links you add to the chain, the harder will be to break the chain, and with the pain of loss hurting more than the delight of gain.

Well, first, you can start tracking this type of decision.

If you could foresee that after buying the movie ticket, on the day of the show, you would not feel the same hype as you had the day you decided to buy the ticket, would you still buy it?

Because the Sunk Cost Fallacy also outlines that your decision at a particular point in time can only be justified by its immediate true cause.

How do you improve your decisions?

By making a lot of bad decisions in the first place: building feedback loops, learning how to screen yourself, and better understand your behavior so that you can craft a strong foundation for plans that you can follow through.

You will notice things that you can optimize, improve and do differently overall, such as be more willing to abandon a project, donate a piece of clothing that you recently bought but secretly hate, or abandon a book if you are not enjoying it and you are 50 pages in or simply eating more than you can stomach simply because you paid for the food.

You also need to have some faith in your past decisions. This translates into picking up your sunk cost fallacy, picking your movie ticket and have faith in the decision you made 2 months ago and have faith that you will be in the mood where you would like to go and see the movie, with any doubt.

And coming to a point where you can better say and acknowledge that you do not have a strong enough cause, a strong enough basis, to continue doing things that would probably have more importance over your future — you will end up having a better set of lenses you can use to improve your future decisions.

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