The Sunk Cost Fallacy

The Sunk Cost Fallacy – Definition & Examples

The following video explores the the phenomenon that psychologists and economists call: the sunk cost fallacy. It’s one of the more common cognitive biases that clouds our judgement.

Instead of making a decision based on potential future returns, we make them on our past losses. Powerful Info in the video below.

 

Let’s say you buy a $10 movie ticket. But 15 minutes in, you realize this movie isn’t what you expected it to be. However, because you feel like you’re supposed to get your money’s worth, you decide to watch the rest of the 2 hour movie.

This decision is based on your loss of $10. But it isn’t an optimal one.  This is the sunk cost fallacy.  Meaning that the more logical thing to do, would have been to get up and leave after you had realized this movie wasn’t what you wanted to watch.

Wouldn’t you be better off, had you only wasted $10 and 15 minutes of your time, instead of wasting $10 and 2 hours? Had you left early, you would’ve essentially gained 2 hours of extra time. Those $10 you spent were gone or “sunk” either way. You couldn’t get them back, whether you watched the rest of the movie or not.

Keep the sunk cost fallacy in mind when you make choices.  It is better to make a choice going forward, than going backwards.

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