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The "Sunk Cost" Fallacy

1/11/2014

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I went to an Edinburgh "Fringe Festival" show recently and it was absolutely awful.  About halfway through I said to my wife, "This is dire, let's go." She was not happy.  Firstly she was not happy that the show was rubbish but not happy that the tickets had cost £12 each.  "I'm not throwing away £24." she said.

"That's no reason to stay, the money has already been spent. Regardless of whether we stay or go, that should not be a consideration."

This is known as the sunk cost fallacy.


As I had paid for the tickets, I suggested there had been no loss on my wife's side, therefore we would leave.


Shortly after...a few days later in fact...I was at a meeting discussing a struggling small business that I had invested in and the manager said the same thing as my wife. "We've invested so much time, money and effort in this that if we stop now it will all have been for nothing."  More sunk cost fallacy.


This fallacy is at its most dangerous when we have invested a serious amount of time, money and effort...or indeed emotional energy such as in a relationship...and the investment itself becomes a reason to keep going.


The more we put in, the greater the sunk costs become and so the urge to keep going gets stronger.


There are many examples of thins in government projects or local council projects.


Personally it can affect you.  My wife spent years becoming a qualified lawyer and then specialising in employment law when all the time ( she confessed to me) she'd much rather have been doing something else, but the "costs" to give up were too high.


If you're running a small business and recognise any of these thought patterns, then the sunk cost fallacy could be at work in your brain.


No matter what you have done to get to this point, the only thing that matters going forward is your assessment of the future costs and benefits.

​

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    Author

    Raymond is a serial entrepreneur, author, World Record Holding public speaker, Corporate Trainer on Raising Angel Finance and Social Media and former qualified corporate lawyer.

    With business experience in Commercial and Residential Property, idea (IP)  protection, restaurants, software, retail, business development and Social Media, he might be best placed to help you improve your Profit Potential. Use the contact page to get in touch.

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