Published here October 2003.

Abstract | Introduction | Reason 1 | Status Quo Bias
Sunk Cost Bias | Supporting Evidence Bias | Framing Bias
Estimating and Forecasting Biases | Garbage In, Garbage Out  | PART II

Sunk Cost Bias

We know rationally that sunk costs -- past investments that are now irrecoverable -- are irrelevant to decision making. Only incremental costs and benefits should influence future choices. Yet, research shows that the more we invest in something (financially, emotionally, or otherwise), the harder it is to give up that investment. For example, in a telephone call, being on hold and hearing the recording, "Your call is important to us ... Please stay on the line," often means that you've got a lot longer to wait. Still, it's hard to hang up and call another time. Similarly, you may have trouble terminating a project that's in trouble if you've already spent a lot on it.

The Concorde is often cited as an example of sunk cost bias. It became obvious early on that the Concorde was very costly to produce and that few orders for planes were coming in. Even though it was clear that the plane would not make money, France and England continued to invest.

Why is it so difficult to free oneself from sunk cost reasoning? Psychologists believe it is because we are unwilling, consciously or unconsciously, to admit to a mistake. For example, if you fire a poor performer you hired, you may feel you are making a public admission of earlier poor judgment.

Some of the techniques that have been suggested to counter sunk cost bias include:

  • Seek out and listen to the views of people who were uninvolved in the original choice.
  • Ask yourself whether you would choose the same course of action that you are now on if there had been no past investment.
  • Be alert to sunk cost bias in the decisions and recommendations made by others. Consider re-assigning responsibilities.
  • Remember that even smart choices (taking into account what was known at the time the decision was made) can have bad outcomes. Cutting your losses does not necessarily mean that you were foolish to make the original choice.
Status Quo Bias  Status Quo Bias

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