If we don’t follow through on a decision, the narrative is one of failure, even if the subsequent choice not to continue is actually in our best interest. One of the reasons not following through on a decision leads to a feeling of loss is because the situation gets framed together, instead of in stages. We may feel that our past investment will be ‘lost’ if we don’t follow through on the decision, and make our choice based on loss aversion rather than consider the benefits gained if we do not continue our commitment. We are more likely to avoid losses than seek out gains. The sunk cost fallacy may, in part, occur due to loss aversion, which describes that the impact of losses feels much worse to us than the impact of gains. ![]() We end up making decisions based on past costs instead of present and future costs and benefits, which are the only ones that rationally make a difference. We fail to consider that whatever time, effort, or money we have already expended will not be recovered. ![]() The sunk cost fallacy is associated with commitment bias, where we continue to support our past decisions despite new evidence suggesting that it isn’t the best course of action. When we have previously invested in a choice, we will likely feel guilty or regretful if we do not follow through. The sunk cost fallacy occurs because we are not purely rational decision-makers, and we are often influenced by our emotions. Since governments sometimes use taxpayers' money for projects, their adherence to the sunk cost fallacy can negatively affect us all. This is because the sunk costs will never be recovered regardless of whether the project is continued or abandoned. If governments and large companies like those involved in the Concorde project are susceptible to cognitive fallacies such as sunk cost, it is easy to see that significant amounts of money, time, and effort are wasted. 4 Ultimately, this led to millions of dollars wasted, and the Concorde operated for less than 30 years. The manufacturers and governments followed through on the project because they had already made significant financial investments and dedicated a lot of time to the project. 3 Long before the project was over, it was clear that there were increasing costs and that the financial gains of the plane, once in use, would not offset them. 2 French and British engine manufacturers and their governments were involved in the project, which was estimated to cost almost 100 million dollars. In 1956, the Supersonic Transport Aircraft Committee met to discuss building a supersonic airplane, the Concorde. The Concorde Fallacy is a famous example of sunk costs impacting large-scale decisions. It has also been proven to impact the decisions that governments and companies make. The sunk cost fallacy not only has an impact on small day-to-day decisions like attending a concert. After all, we’ve already invested money into it. These outcomes range from deciding to stay with a partner even if we are unhappy because we’ve already invested years of our lives with them, to continuing to spend money renovating an old house, even if it would be cheaper to buy a new one. The fallacy affects many different areas of our lives, leading to suboptimal outcomes. The sunk cost fallacy means that we are making irrational decisions because we are factoring in influences other than the current alternatives. Regardless of what we have already invested, we will not get it back whether or not we follow through on the decision. If we acted rationally, only future costs and benefits would be taken into account. ![]() It is irrational to use irrecoverable costs to justify a present decision. Therefore, It should not be a factor in current decision-making. In economic terms, sunk costs are costs that have already been incurred and cannot be recovered.1 In the previous example, the $50 spent on concert tickets would not be recovered whether or not you attended the concert.
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