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The Sunk Cost Fallacy

Theme song: Rumble by Excision, Space Laces




Sunk cost is actually a term primarily found in economics, probably one of the only things I remember from that college class, but its applications are far reaching and psychologically indispensable.


A sunk cost is a tendency to continue to put money, effort, or time into something that we have invested in, even when the cost outweighs the benefit. In business this refers to the idea of continuing to pour money into failing ventures, expecting the outcome to change despite evidence to the contrary. In life the application is much more varied ranging from going to an event you don't feel like going to anymore but paid for, staying in an unhealthy relationship whether it be with a job, person, hobby, habit, thinking pattern, behavioral pattern, belief system, or anything else under the sun that you don't want to give up due to the work you've put into it or the fear of what your life would look like by changing it. It's like not leaving a sinking ship despite it irrefutably sinking because you liked its aesthetics. Sound familiar? We all do it. In fact, as a therapist I saw it all the time.



One of the biggest ways that I see the sunk cost principle is people's attachment to things they believe define them. "But I've always been this way" or "I don't know who I would be without (x thing)" or "it's just who I am" and similar iterations have echoed in my office independent of age, gender, race, religion, or any other characterizing factor. What they are really saying is "I'm scared of what would happen without this." Fuck that.


The whole idea behind the suck cost fallacy is dropping what doesn't serve you anymore. So what if you suddenly stop liking old hobbies, or fall out of love, or want to adopt new belief systems that could fundamentally alter how you interact with the world. If it isn't serving you, stop holding on to it. If it isn't making you happy, change it.


I had a conversation today with a client about how he is waiting to pursue his dreams until he is financially stable even though he is currently unhappy with his life. He has the means to pursue his dreams, but his fear of change is holding him hostage and he'd committed in his mind to tough it out for another decade or two. Change would require him to apply the sunk cost principle to his career and possibly his relationships. Fortunately, he had the foresight in session to recognize the logical inconsistencies of delaying his own joy and waiting to live his life until he's old. Freedom is found in being willing to let go of what isn't good for you anymore.


Let me quote Albert Einstein again:


"The definition of insanity is doing the same thing over and over and expecting different results."


If you want to be happy, you have to change that which makes you unhappy.



So why do we hold onto things that no longer serve us? Emotional attachment.


I will once again refer to non-attachment, the buddhist principle that emphasizes the importance of not being overly attached to anything. Non-attachment isn't not caring, nor is it narcissism, being emotionless, or anything similar. Non-attachment is the idea of not needing something in order to be happy. Can you want it? Absolutely! But when you cross the threshold to needing it, you become stuck. You don't need ANYTHING in order to be happy. You get to decide to choose happiness, no matter what. You have the power to change your reality. That is the essence of the sunk cost principle. Don't become attached to what did make you happy, or what was successful, or what previously brought you joy. You are a dynamic human being and are changing constantly. Don't define yourself by what was, but choose to define yourself by what is.


Here is an article I like about the psychology of the sunk cost fallacy that I will expound upon. It lists some psychology principles of why people fall into the sunk cost fallacy.


  1. Loss Aversion: Loss aversion refers to the human tendency to put much greater weight on negative experiences than positive ones, a principle called negativity bias. This idea explains why many people stay up on a restless night thinking about that one negative comment someone said as opposed to the many positive comments others have made. We don't like to lose shit even though attachment to loss is asinine.

  2. The Framing Effect: We don't like to fail. We often think of change as failure rather than understanding it as growth. How we frame letting go of something determines how we feel about it.

  3. Unrealistic Optimism: We overestimate our chances of things going well and underestimate the chances of things going poorly without any substantiating evidence. This keeps us in unhealthy patterns for far longer than we need to be in them.

  4. A Sense of Personal Responsibility: If you feel responsible for something, you are much more likely to continue to engage in it. This could be a business, other people, other's feelings, etc.

  5. A Desire to Not Appear Wasteful: People feel bad about "wasting." With the sunk cost principle, we don't want to feel bad about "wasted" money, time, or energy. We double down in order to avoid a sense of ego based loss resulting in perpetuating our own unhappiness. We fail to realize that "wasting" "X" thing is less important than wasting their time and overall joy and happiness.


The purpose of me writing this post is to hopefully help you evaluate where you are refusing to cut your losses and pursue your joy. I have not attended concerts I bought tickets for because I didn't feel like going the day it occurred, changed my personality traits I thought were congenital and unalterable, let go of my belief systems I had lived devoutly for 27 years in the space of three months, dropped relationship that no longer were good for me including divorce, and even voluntarily renounced my therapist master's degree (LMFT). I'm not just talking about this, I'm living it. And I am incredibly happy.



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