Recognizing the Sunk Cost Fallacy May Help You Cut Your Losses

Our society loves to emphasize perseverance. Never quit! Never give up! Don't waste. But only you know the right path for you.

Unsplash / Leah Hetteberg

I came across an image recently of a distance runner with a caption that told readers to persevere at all costs. It reminded me of a conversation I had. My colleague's teaching assistant was asking for my advice. He wanted to know when to quit something. He described how he'd been playing an online game with people for some time. It hadn't been very fun lately, but there was always that small chance of a payout (upgraded gear, etc).

I asked a bit more about his relationship with the players and what he was getting out of the game. Then I proceeded to tell him about the sunk cost fallacy, a concept I researched in grad school after realizing I'd been so susceptible to it.

You see, in high school, I had applied to five universities. My only plan was to select the cheapest option (I was going to be a stay-at-home anyway, so did the quality of the programs really matter?). I heard back from four, and Southern Utah University (SUU) was going to give me the best scholarship. I paid them my $100 commitment fee, which felt like an incredible sacrifice at the time.

A few weeks later, I heard back from the last school, which was offering an even better scholarship with full tuition paid for four years. And what did 17-year-old me do? I stayed committed to SUU. I'd already made my initial $100 investment and began mentally preparing to move to Cedar City. It seems obvious to me now that switching schools, even if it meant admitting I'd "wasted" $100 was the better financial decision.

Being a slow learner, I committed this fallacy once again as an undergrad. I had double majored in elementary education and psychology. I knew I was interested in the latter, but it didn't seem like a practical career choice. By the time I reached my senior year, I had finished all of the psychology requirements. And it had become pretty clear that elementary education wasn't what I wanted. If fact, despite scoring in the top 15% of test takers for the math endorsement, I almost didn't get admitted into the program because "her heart's not in it."

But I'd already come that far—why not just finish it off? So I did. I continued for two more semesters, completed student teaching, and got fully licensed. Just for the license to go unused and expire.

A rational decision maker is not ruled by past investments, they simply weigh future outcomes. I didn't focus on future outcomes when weighing colleges, I focused on the money I sunk into SUU. Rather than evaluating future career options, I focused on the fact that I'd already taken elementary education courses.

Rather than focusing on future outcomes, Vietnam commanders advocated for a path that ultimately led to even more lives lost.

Unsplash / Tita

I'm not the only one that's fallen pray to this. People will wear clothes they don't like because they paid money for them (the money's not coming back). People will stay in unhealthy relationships because they've been together for so long (so they continue to have more unhappy years). Just because you've sunk time, effort, or money into something, doesn't mean you should sink in more.

A commander during the Vietnam War reported that we couldn't pull troops out because it would mean the soldiers who died had done so in vain. Rather than focusing on future outcomes, he advocated for a path that ultimately led to even more lives lost.

As I explained this concept to the student, he got a strange look on his face. I asked, "Sorry, did I confuse you? Maybe your past time spent in the game isn't what you're factoring into your decision."

He responded, "No. Actually, that's exactly what I needed to hear." He quit his gaming league right then. The next day he told me he'd thought a lot about our conversation and continued to walk away from other things that were no longer serving him.

Our society loves to emphasize perseverance. Never quit! Never give up! Don't waste. But only you know the right path for you. Sometimes walking away is the hardest choice of all. You might realize a path you're on is no longer the right one or never was. That's a painful realization.

It's never too late to change course—no matter how long you've been there.