In my work with teams who make decisions together about tactics, strategy, and personnel, logical fallacies and cognitive biases show up, so I’m going to write a few posts about some of the most common. This is the sixth post in this series. You can find links to the first five posts at the bottom of this one.
Cognitive Bias: The Sunk Cost Fallacy
Definition: You irrationally cling to things that have already cost you something.
When you’ve invested time, money, or emotion into items, projects, or relationships, it hurts to let them go. The past investment tricks our minds into sticking with them, even if we wouldn’t invest in them starting today. Despite the fact “fallacy” is in the name, this is actually a cognitive bias—something that affects our own decision making and thinking.
Simple Example: I’m paying rent month to month on an office I used to use. I don’t use it much anymore, and I likely won’t in the future. Still, I keep paying the rent because maybe it will come in handy later.
What it looks like:
- You invest a major chunk of your marketing budget into an online ad campaign and decide it will run for nine months. After three months, there is no impact on sales, and your A/B testing indicates the ad is ineffective. But because the plan is in place and the money is allocated, you stick with it.
- You maintain a friendship with someone you have nothing in common with anymore, because you’ve known each other for a very long time. Neither of you really enjoys your time together, but you go through the motions anyway.
- You keep your gym membership even though you don’t go anymore.
Like with the simple example and the third one above, many costs or commitments can be picked up again later if we decide to return. But fear of missing out (FOMO) can lead us to keep pushing forward.
What to do?
Ask yourself and a trusted peer or colleague, “If I hadn’t done this in the past, knowing what I know now, would I start investing in this right now?” If the answer is no, it’s likely time to let go.
What examples can you add?
For more in this series: