11 July 2019 | 21 Comments
Have you ever succumbed to the sunk cost fallacy? I have, and I just barely escaped from it.
If you’re not familiar with the concept, here are two excellent definitions:
- “Individuals commit the sunk cost fallacy when they continue a behavior or endeavor as a result of previously invested resources (time, money or effort) (Arkes & Blumer, 1985).” (Behavioral Economics)
- “…the more you invest in something the harder it becomes to abandon it.” (You Are Not So Smart)
As the first definition suggests, the sunk cost fallacy isn’t inherently bad. Like, you might be watching season 3 of Stranger Things right now. Part of the reason you might be doing so is because you’ve already invested your time and energy into the first 2 seasons. That isn’t a bad thing, especially if you’re continuing to enjoy the show.
However, as the second definition points out, it’s often the case that as you spend more time on something, the harder it is to stop, even if there’s an accumulation of evidence suggesting otherwise. (I’m not suggesting this is the case with Stranger Things–I haven’t watched season 3 yet, but I’m looking forward to doing so.)
That brings us to how I succumbed to the sunk cost fallacy with something you’re using right now: the Stonemaier Games website.
Since 2012, I’ve used GoDaddy as my hosting provider for this website. From my non-techie perspective, I thought they did a pretty good job. Sure, the site went down from time to time, but GoDaddy has good customer service, and they’d generally get it back online within the hour.
So at a certain point after paying for annual renewals, I made a long-term commitment. I can’t remember the exact numbers, but it was something like a 10-year prepayment with a significant savings per year as a result. It seemed like a good financial decision at the time.
However, as this website and its audience grew, our hosting service with GoDaddy couldn’t quite keep up. Our web developer, Dave Hewer, could go into detail about this, but to put it in basic terms that I understand, our website site was really slow.
Dave would tell me about this every few months (gently, not pushy), but my response was always the same: I’ve already prepaid for 10 years of GoDaddy, so we’ll just wrap up that commitment and then change hosting providers.
This is classic sunk cost fallacy behavior. An expert was providing hard evidence that there was a better option, yet the primary reason I didn’t want to change was an unchangeable investment.
Fortunately, a few months ago, the website got so unbearably slow that I asked Dave to switch to a different hosting provider (he chose FreshSites). And you know what? I haven’t thought about the wasted prepayment for a single second since then.
I wish I had a magical formula to help you avoid the same sunk cost fallacy travails, as it could save you a huge headache regarding your business, relationship, education, creations, and consumables.
While I don’t have that, I have an idea that I think may work. It’s a 3-step process:
- Admit that you have a specific sunk cost issue. If you ever find yourself tempted to make a change but the reason you don’t is because of an existing investment in time, money, or effort, you may have a sunk cost issue.
- Consistently and repeatedly ask yourself if you’re happy with the status quo for one week. Keep a sticky note on your desk with the results. Depending on the issue, you might need more time or even use a scale from 1-10. Just make sure to focus on the present, not the past or the future. Are you happy RIGHT NOW?
- Act accordingly to the results of your self-survey. If you look back at your notes and see that you’re consistently unhappy with the situation in the present, you should be able to see that it’s unlikely to change in the future. This voids the relevance of the past–the anchor of the sunk cost fallacy–and will hopefully inspire you to make a change. But perhaps you’ll also find that the status quo really isn’t all that bad, and you can stick with it.
That’s one possible solution of many. Have you ever encountered a sunk cost fallacy in your life, and how did you address it?
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