“Just a month ago, you spent $2,000 getting your 10-year-old car’s transmission rebuilt. Now you find out the car is leaking oil and needs a ring job. Do you spend the next thousand or buy a new car? You’ve been living with your romantic partner for 10 years. The relationship has had its ups and downs, and both of you have invested a lot in keeping it going. But every day it seems to involve more work and less joy. Is it time to move on? You work for a private equity firm and personally persuaded your skeptical partners to invest $2 million in a high-tech start-up. Now the chief executive comes to see you with the news that they’ve hit some snags in developing their product, and they’ll need at least another million to bring it to market. Do you write the check? We’ve all encountered situations like these. We make a significant investment — of money, time or emotion — in some project, relationship or business deal, and it doesn’t seem to be working out. Do we continue to “throw good money after bad” or do we “cut and run” and “stop wasting time”? What’s the right way to think about such decisions? Psychologists, decision scientists and economists have an answer. They tell us that it’s a mistake to continue with a project or an activity because of what you have already invested in it. The time or money you’ve already spent is gone. You can’t reclaim it. Using a past investment to justify a future investment is what they call the “sunk-cost fallacy.”” BARRY SCHWARTZ
Our peace of mind suffers when we fall victim to the sunk cost fallacy in our life choices. Psychologists have found that children are less likely to fall victim to it as indeed are ‘lower animals’. Why do we do this? A rule like “Past investment predicts future benefits” is serviceable most of the time. But it has its limits: “this simple rule fails in precisely those circumstances in which additional resources do not result in a concomitant increase in future benefits. The inability of humans to identify such situations a priori is the reason the sunk cost fallacy occurs.” Arkes and Ayton conclude in their paper: ‘Are humans less rational than lower animals?’ They suggest that we overgeneralise heuristics that apply only ‘some of the time’ to ‘all of the time’. We do not take time to stop and analyse a situation for fit to a given heuristic. Why? The busier we are, the less pauses we have in our day, the more we depend on heuristics that may not apply to this particular situation.
So, today take time to read the examples in the quote above. Sit with the idea that the sunk cost fallacy costs when applied incorrectly. Where in your life are you applying this heuristic which may be causing that monkey mind to go on overdrive? Is it time to change that decision making heuristic in a given situation to help you reduce mind chatter? It is these small actions that can give us a little inner stillness.
This Daily Stillness has been recycled from previously published ones:
• #tds791 Do you overgeneralise the ‘Don’t Waste’ Rule? (Aug 29, 2017)