sunk-cost fallacy


Why is it a fallacy when it makes so much sense intuitively?

In: Other

A lot of people say things like “Well, I don’t actually want this degree, but I’m only six months from finishing, so I might as well.”

Compare that with this scenario; the store is two miles away. You start walking there and, a mile later, remember it’s closed today. Do you walk the rest of the way anyway? Of course not. Just because you have put resources into achieving a goal does not make that goal worth additional resources; the goal may not even be achievable. And yet people often think it does; it is a fallacy.

The fact that it makes sense doesn’t preclude it from being a fallacy. A fallacy is just a mistaken belief.

Thinking about it, it makes perfect sense that it might be a bad idea to continue to pursue something just because you’ve already put money and time and effort into it rather than because it’s actually worth pursuing.

But that *belief* that you should continue to pursue that thing just because you’ve already put so much money/time/effort into it *is mistaken*, and therefore fallacious.

You’ve already put a lot of money into something that isn’t paying off, so you naturally feel like you need to keep paying for that thing.

Let’s say you’ve been buying lottery tickets under the theory that one will eventually win. But if every payment has an equal chance of yielding nothing, then your previous investments don’t matter. You feel compelled to buy more lottery tickets, because if you stop before you win anything, then all the previous lottery tickets were pointless. But the previous tickets are already pointless. The logical basis for buying more is fallacious.

The sunk-cost fallacy is an illogical basis for decisions, but it acts on everyone at some point. When you sink costs into something, you feel like you have to keep paying until you get what you want. If you stop sinking those costs, then everything you sank earlier was a waste.

It’s only a fallacy if you really can’t dig yourself out of the hole, if you’d just be “throwing good money after bad.”

So for example, let’s say you think it’s only a 10 minute walk between your house and your friend’s place. You start walking and after 20 minutes you’re still not there, it turned out to be much farther away than you thought. You consider giving up and walking home. If your friend’s place is 30 minutes away from your house, then it’s not a sunk cost, you only have 10 more minutes of walking to get to your destination. You’d have to walk back for *20* minutes if you were to turn around now.

But if you’re friend’s place is an *hour* away from your house, then you’re still 40 minutes away, and it makes more sense to just turn around and walk the 20 minutes home. You may have already wasted 20 minutes of walking, but you’ll be walking even more if you don’t turn around now.

The sunk cost fallacy only applies to situations where if you keep along your current path, you’re still not going to achieve your goal. Or a situation where keeping along your current path will require more costs than you’re even going to receive in the end, making it not worth it. There are some situations where “I’ve already come this far, I can’t give up now” makes sense and isn’t a fallacy.