Sunday, January 24, 2021

Sunk Cost Bias - getting trapped in our mistakes

Several years ago I was sat in the waiting room of a garage, waiting for the mechanics to bring my car out onto the forecourt. There was a chap sat next to me who started bemoaning how much his car was costing him. He was facing a bill for £800. 

My old car. Took me to Mull and back.

I remember him saying how in the few months since he had bought the car it had needed several expensive repairs and he had already spent over £1000 on it. Now he had to spend another £800, and he felt that if he didn't spend it then that £1000 would have been "wasted".

He was trapped in a cycle of spending money to keep that car roadworthy, and I imagine he ended up spending a lot more money in the end.

I didn't know it then, but I know now why he felt trapped and that he had to carry on spending money on a car that was obviously a lemon from the get-go. He was experiencing 'sunk cost bias'.

The easiest way to explain sunk cost bias is that if we have committed a lot of time, energy and resource to a given project or relationship then it is harder to end it. We still feel the value of the costs we have 'sunk' and feel we would be losing those things forever, so we try and hold on to them by continuing to invest. Sunk cost bias is why the longer you stay in a dead end job the harder it gets to leave, why people persist with personal relationships that are damaging to them, and why companies keep shoveling money into projects as costs spiral out of control and delivery deadlines are missed. 

The essential truth though, is that those sunk costs are already gone. You will never get back the costs you have sunk into something even if you keep investing in it. That chap with the car needed to realise that the £1000 he had spent on it was gone. He was now being asked to pay another £800 but that wasn't going to bring back the £1000 he had already spent. He wasn't going to recoup any of his losses by spending more money. 

Similarly if you are in a situation where you have given a lot of time to a relationship or to a career which is robbing you of joy on a daily basis or causing you continuous stress, that time has passed and is gone forever. Committing more time to trying to make that failing relationship work or for that job to improve is not going to restore the time you have lost. 

Identifying a sunk cost bias in your own life can be liberating. When you realise that the money or the time or the effort has gone, whatever you choose to do, you can start making choices based on what you want and need right now. You can draw a line under damaging and costly experiences and start anew.

Nothing is ever truly wasted, of course, if you turn it into a learning experience. In fact, at it's most basic level, sunk cost bias is a failure to learn. It places so much emphasis on what has happened in the past it prevents you from exploring possible futures. But to make those futures a reality you have to let go of the sunk costs that are dragging you under with them.

No comments:

Post a Comment