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We've all experienced the sunk cost fallacy: when you are deep into a task and tell yourself that you’ve come this far, so you may as well finish it. We do this even if it's no longer logical to finish. So why do we do it?

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Sources:
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https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/sunk-cost-fallacy/
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https://web.colby.edu/cogblog/2017/04/21/throwing-good-money-after-bad-why-we-fall-victim-to-the-sunk-cost-fallacy-and-how-to-beat-it/
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[ ♪INTRO ].

If you’ve ever gotten deep into a task and told yourself that you’ve come this far, so you may as well finish it, you’ve fallen prey to the sunk cost effect, more popularly known as the sunk cost fallacy. This is when you continue with some sort of effort once you’ve already invested time, money, or some other resource in it — even if you don’t really want to go through with it.

You’ve likely experienced this for yourself in everyday life. Like, you might have been more reluctant to resign from your miserable job since you’d been in it a few months. Or maybe you’ve gone to a concert you didn’t really want to since you’d already paid for the tickets.

Maybe you’ve even stayed in a rocky relationship since you’ve known the other person for years. But while a lot of us have used sunk costs to justify our choices… it shouldn’t make sense. So, why do we do it?

Some of the research in this field comes from behavioral economists. They view people as rational decision-makers who make choices based on the best use of finite resources like limited time or money. And they argue that a sunk cost is irrational.

It shouldn’t even be one of the factors that influence your decision. That’s because you’ve already expended time, effort, or money in it and it’s no longer an available resource to choose from. Yet people aren’t robots — we’re not always flawlessly rational actors.

This is a thing we do all the time. And the more we’ve invested in a sunk cost, the more likely we are to commit to it. A 1990 study in The Journal of Applied Psychology examined this idea using 407 undergraduate business students.

Researchers asked if the students would decide to continue a project when they found out they had been outdone by their competitor, given that some amount of money had already been spent on it. The study found that the more money had already been spent on the project, the more likely people would continue to spend money on it. This tendency to keep committing to a less desirable situation is known as escalation of commitment, and often goes hand-in-hand with sunk cost effects.

So why exactly do we go all in on lost causes? It turns out there’s not really one explanation for why. One major theory is based on self-justification.

It’s the idea that you commit to a sunk cost because you don’t want to admit that you made a bad investment — either to others or to yourself. A group from Ohio University published a study in 1985 on the psychology of sunk cost. In one of the experiments in this study, 81 college students from Ohio and Oregon were presented with a scenario in which they owned a printing business.

Their competitor had just gone broke and offered to sell them their super-fast printing press for super cheap. But in the scenario, participants had just bought a new, slower, more expensive press. People who said no to the cheap, fast new press gave reasons like “I already have a good, new press for a lot of money,” which suggested they didn’t want to look like they’d wasted resources.

Other studies have postulated that the sunk cost effect can be explained by loss aversion. That’s the idea that losses are much more psychologically impactful than gains of the same size. For example, you’d probably prefer the idea of not losing $100 to winning $100.

So people would rather allocate more time and money to a sunk cost because they just may turn the situation around, rather than stop trying because they know that the loss is inevitable. Plenty of other theories have been put forth over the years. For example, one 2007 study suggested that people pursue sunk costs because they don’t want to regret giving up.

And some researchers have argued that no one theory fits everything. One study published in 1992 found plenty of support for the self-justification idea, but also suggested that other theories might better explain sunk-cost behavior in specific cases. Furthermore, a number of factors can potentially influence whether you still go in on a sunk cost.

They could include how personally responsible you feel for your original decision to invest, whether your sunk-cost behavior is being observed by an audience, and even whether you’re making a decision as an individual or a group. One study published in Psychological Science in 2018 has even suggested that you don’t have to incur the sunk cost yourself to feel the pressure. In one experiment, participants were more likely to say that a fictional character named Agatha should keep playing the cello if her husband had paid a lot for her initial lessons, rather than if he had paid little.

No matter what the explanation, though, sunk costs are still sunk costs. So how do we avoid them? One researcher, a clinical professor of psychology at Weill-Cornell Medical School, has suggested that you should take a step back, let go of any judgments, and think about your situation.

For example, are you missing out on other opportunities because you’re committed to this one thing? If you saw someone else doing the same thing, what would you tell them to do? The thing is, even if you’ve put so much time and effort in, it just may be worth it to let it go in the end.

After all, that’s another way of finishing it. Thanks for watching this episode of SciShow Psych, and thanks to our awesome patrons for supporting us. If you want to help us do what we do here, check out patreon.com/scishow. [ ♪OUTRO ].