![]() ![]() Perhaps Bob doesn’t leave Acme because he values his pride and his identity as an Acme engineer more than he does the extra money he’d make elsewhere. The truth is that when weighing whether a major decision is worth it or not, our emotions add a lot to the scale. Why? Because Bob trained for years to work at Acme and he doesn’t want that training to be “wasted.”īut the sunk cost fallacy usually only appears to be a fallacy because we measure the output in terms of money. In economics, the sunk cost fallacy is seen as purely irrational. Governments don’t surrender when losing a war because they don’t want people to feel as though their soldiers died for nothing. ![]() People don’t want to quit the job that underpays them because they don’t want to feel as though they wasted the last five years of their life.īusinesses don’t cut wasteful spending because management doesn’t want to admit they were wrong about something. The sunk cost fallacy is also illustrated in the saying, “throwing good money after bad.” But rather than discontinuing the campaign, they need to feel like they got some return for all of the time and money invested, so they continue to run it even though it loses money. You’re actually making yourself less happy than if you simply discarded it because you want to justify the money you spent.Īnother example is when a company spends a ton of money on an ad campaign that bombs. The classic example occurs when you buy something that you end up not needing or enjoying, but you force yourself to use it anyway because you don’t want the money to go to waste. The sunk cost fallacy occurs when someone makes a decision based on their previously invested time or resources. In economics, there’s a concept known as the sunk cost fallacy. ![]()
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