Tuesday, November 11, 2014

Sunk Cost Fallacy - We Should Avoid At All Cost

Yesterday, I've learnt a new term (from a book) which many of us might be practicing it whether we are aware or not aware of it. It is called Sunk Cost Fallacy and I learnt it from an interesting book called, The Art of Thinking Clearly (by Rolf Dobelli).
Following is the proper definition of Sunk Cost Fallacy : the fallacy of honoring sunk costs, which decision-theoretically should just be ignored. In short, it is a mental state of us "refusing" to forget the past when making decision. 
Some common ones are :
"I've already spent so much time and effort on this relationship, I need to hang on to it...."
"I've invested so much money on this stock, I am sure it will recover soon..."
"I've spent $10 on the movie, I should just finished it even though it is dreadful.."
I think you get the idea...
The key here is that our decision should not take the past (the sunk cost) as one of the considering factor, since it has been spent/exhausted, how much we spent previously would not have impact on whether we will make a right decision or not. Our decision should based on the future potential/benefits and not the past. I am kind of agreeable to this and hence we should try to avoid Sunk Cost Fallacy at all cost!
What do you think?


  1. Hi Richard

    Good post.

    Theoretically it feels sound to do so but in reality we will take into consideration whatever cost we have incurred, even including time and effort which are immeasurable.

    1. Hi B : thanks for dropping by! Yup, I guess it is human nature....


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