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). My boyfriend Roy and I went to the Outer Banks of North Carolina over Thanksgiving weekend. In our traveling around, we decided to check out the Currituck Lighthouse in Corolla. The Currituck Lighthouse is a brick lighthouse that is not painted, unlike the other famous lighthouses of North Carolina like Cape Hatteras and Cape Lookout. We parked, took pictures and one of the employees asked if we were going to climb to the top of the lighthouse. Well, since it was open and it was the last weekend it was open for the year, we decided to check it out. We climbed the five steps up to the entry way and heard the liability speech of climbing the 220 steps to the top. The entrance employee said, “Well there are 220 steps to the top and you have already gone up 5 of them.” Sounds simple enough but in my head, I thought, “Well you’ve already gone up 5 so you might as well go all the way to the top.”
This is an example of the sunk cost fallacy. It’s obviously non-sensible in retrospect. Why in the world would 5 steps out of 220 steps with 215 steps remaining make me feel: “Well, we’ve come this far, might as well climb the thing”? Have I mentioned that I have a bit of acrophobia and claustrophobia? But the entrance employee’s statement of my sunk cost of the five steps that I just came up? I was hooked. I had to complete it now. I had already done part of the work. Let me finish this. The sunk cost fallacy is constantly showing up in life and there are some good reasons why we succumb to it.
Here are four reasons we succumb to the sunk cost fallacy:
- We fall prey to the stick more than the carrot
Punishment is driving you more than pleasure. We all have loss aversion. I had already “suffered” going up 5 steps. I rather suffer 215 more steps than going back down the 5 I already went up. There are apps for this (StickK, Beeminder, etc.). Where you make a pact to give up smoking, alcohol or chocolate, and if you fail ,you pay money to some organization that you despise, like a political group you are opposed to. The stick is mightier than the carrot. It is why you stay in a relationship where you aren’t happy. You’ve already invested 5 months, 5 years or 5 decades with someone and the loss of hurting the person’s feelings through a breakup is too great. So, think about if you are just being loss averse or if there really is a good reason to go up the 215 steps. In my case, there was a view at the top and the unique experience of climbing a lighthouse. Try and focus on the carrot and whether it’s worth it.
- We don’t want to be wasteful
It might be my upbringing, but I always remember being a part of the clean plate club. My parents would tell me to think about the starving Albanians while I pushed Brussel sprouts around my dinner plate as a child. It’s also why I hold onto clothes and shoes and random electronic cords that serve no purpose. I don’t want to be wasteful. I can’t stand giving away a jacket that I bought three years ago that still has its price tag or the pair of shoes I spent more than $100 for that do not fit and have never felt comfortable. I have to say that I love the Netflix series Tidying Up with Marie Kondo. Marie goes to people’s homes and helps them go through their things. She asks the person to hold the item and see if it sparks joy. That jacket that is hanging in my closet with the price tag on it? It does not spark joy. I need to thank it and donate it to someone who can use it. The random cords that go to something I no longer own or use? They need to get thrown out. I’m working on letting go of things even though it might feel wasteful.
- We want to look back instead of forward
In an article by Mark Reipe for Charles Schwab, “In the case of the sunk cost fallacy, the fear of acknowledging a ‘loss’ can keep us looking backward at events that we can’t change, when our self-interest lies in thinking about what comes next.” When my marriage fell apart two years ago, I kept focusing on what went wrong. I kept looking back and not looking forward. I was examining the sunk cost of 17 years of marriage in hindsight, instead of looking forward to what was possible now. I sort of imagine now, what would happen if I spilled some milk and kept thinking about that spilled milk over and over and over again. It’s pointless. The milk is cleaned up and gone now. What’s possible if I don’t focus on past history and see what’s possible now?
- We can’t recover what we’ve already invested
I love the analogy that Reipe wrote: “A rational approach to sunk costs is to say that money you can’t get back should have no influence on decisions about what you do next. Only additional future costs should matter. Say you throw $100 into a wishing well and your wish isn’t granted. Would you throw another $100 after it?” This says to me that we need to start where we are and move forward. Quit tallying up the cost of the car repairs or the dead-beat client that refuses to pay. Move on. What will it cost to keep the car running right now? Who cares if the shoes were over $100, if you won’t be comfortable in them, donate them to someone who will wear them? I cannot recover what I have already spent. Move on.
I survived the 220 steps, along with my acrophobia and claustrophobia, all the way to the top of the lighthouse. And the 220 steps back down. I’m glad I did it. The sunk cost fallacy might have spurred me to the top, but the experience of climbing a lighthouse and testing my fears is what sustained me. It makes me think about what else I might be forging forward on that I really need to let go of. What are you holding onto because of sunk cost?