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Key points
- Good decision-making requires ignoring sunk costs—the costs already incurred that one can’t get back.
- A person can run into trouble when overgeneralizing their desire to avoid waste by trying to recoup costs that can’t be recovered.
- One way to avoid sunk costs is to treat past investments like gifts from one's past self, and decide whether to accept them or not.
Starting new things can be hard.
One reason it’s hard to start new things is that it’s hard to give up on the old things. We worry that if we give up on something—whether it’s a job or a relationship or a hobby or a business venture—then all the time, money, effort, and emotional energy we put into it will be wasted.
The desire to avoid waste can be helpful if it leads us to be mindful of how we invest our time, money, effort, and emotional energy. The problem is when we overgeneralize our desire to avoid waste by trying to recover costs that can’t be recovered. Economists refer to these as sunk costs—costs you’ve already incurred that you can’t get back.
Because we can’t get those costs back, economists say we should ignore them when making decisions about what to do now. When we try to salvage our sunk costs, we end up throwing good time, money, effort, and emotional energy after bad. We continue on paths that no longer serve us simply because we’ve already invested so much in them. We stay in relationships that aren’t going anywhere, cities that don’t fit our current lifestyle, and jobs we’ve outgrown.
As we emerge from the pandemic, now is an ideal time to evaluate whether our past choices fit where we want to go now.
How to avoid the sunk cost trap
One reason it can be hard to ignore our sunk costs is that they feel personal. It’s time, money, effort, and emotional energy that we invested to get to where we are. So, one way to try to avoid the sunk cost trap is to try to detach ourselves from our past sunk costs so we can focus on whether our decisions still work for us today.
Entrepreneur and author Seth Godin has a clever way of reframing our choices to get psychological detachment from our past decisions. According to Godin, we should think of our past investments as gifts from our past self and we get to decide now whether we want to accept these gifts.
Think about how you feel when you get a really bad gift. Imagine that you just received a very expensive sweater that you think is absolutely hideous. You’d probably think, What am I going to do with this?
If the gift is from someone you know and like, you might feel obligated to keep it because you don’t want to make them feel bad. But what if the hideous sweater is a gift from your past self? You don’t need to keep a terrible gift just so your past self won’t feel bad. Your past self can’t feel bad. Your past self can’t feel anything anymore.
So, instead of worrying about whether your past self will feel bad if you reject the gift, you get to decide whether you want to keep it based on whether you want it now. Will you ever wear it? Is it worth taking up space in your closet? Could someone else benefit from it more?
The beauty of thinking about our past choices as gifts from our past self is that it helps put some distance between our past investments—our sunk costs—and our current self. That distance helps us to psychologically detach from our sunk costs, which helps discourage us from giving them too much weight when we’re deciding what to do now.
That doesn’t mean we won’t have to deal with the effects of our past decisions. We can decide whether to keep going with our past decisions, but we can’t decide whether to be affected by them or whether other people are affected by them. Our choices have consequences, and we can’t untravel the roads we have been down.
But just because we can’t untravel the roads that took us to where we are doesn’t mean we can’t change course today. As Godin says, “Just because you have a law degree, a travel agency, or the ability to do calligraphy in Cyrillic doesn’t mean that your future self is obligated to accept that gift.”
Reevaluating our pre-pandemic choices
As we emerge from pandemic life, now is a great time to reevaluate our past decisions. Since our pre-COVID choices were made over two years ago, the pandemic has given us the gift of distance from those past choices.
So, as you consider whether to go back to what you had and to the way things were before COVID, take advantage of the distance between your past sunk costs and your current self. Don’t get caught in a sunk cost trap. Instead, ask yourself: What do I want to invest my time, money, effort, and emotional energy in now?
You don’t have to want the same things you did in the past. The world has changed, and you probably have too.
References
Arkes, H. R., & Ayton, P. (1999). The sunk cost and Concorde effects: Are humans less rational than lower animals? Psychological Bulletin, 125(5), 591–600.
Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational behavior and human decision processes, 35(1), 124-140.
