Hi, I’m Felix! Welcome to this week’s ADPList’s Newsletter; 🔒 subscriber-only edition 🔒 weekly advice column. I write high-quality insights on designing products people love and leadership in tech. If you’re interested in sponsoring us, let’s chat!
🎁 Claim your 10% off annually (only $71/year) for our Premium Weekly Newsletter to contribute to our mission to help bring shared knowledge and inspiration to the world.
Q: 85% of leaders will get stuck at least twice in their career — let’s dig a deeper hole in this
Ever find yourself sticking with a job or career path just because you've already invested so much time and energy into it? You're not alone. This common pitfall, the sunk cost fallacy, can trap us in unfulfilling roles and hinder our professional growth. But the good news? You can break free from it.
In this edition, I'll explore the psychology behind the sunk cost fallacy and practical strategies for recognizing when you're stuck and, more importantly, moving forward.
We'll share real examples, expert insights, and actionable tips to empower you to make decisions that align with your goals and passions.
Let’s dive in! 🔽
Victim of Sunk Cost Fallacy
The term “sunk cost fallacy” might not sound familiar, but you’ve likely fallen victim to it. Have you ever worn an uncomfortable pair of shoes just because they were expensive and ended up with blistered feet? Or force yourself to finish all the food when you’ve over-ordered, leading to indigestion? Or continued to work on a research project even though it was clearly not working?
You’re not alone. Many people will succumb to this behaviour known as the Sunk Cost Fallacy and keep on making bad decisions. It’s important to understand why this happens, in order for you to avoid making the same mistakes again.
Understanding the sunk cost fallacy and its role is key to better decisions.
What is the sunk cost fallacy?
The sunk cost fallacy is a common cognitive bias that drives you to follow through on an idea or course of action because of previously invested resources.
These resources may include a large amount of time, money, or energy spent on a certain task.
Economic Professor Richard Thaler’s research was built on findings published by Daniel Kahneman and Amos Tversky one year prior. Their research explored a concept called loss aversion.
This cognitive bias in behavioral economics aimed to explain why people have a greater tendency to take on risks when they are facing potential losses. Their paper also discussed why people are less willing to take risks when they could gain from it.
Where does the sunk cost fallacy apply?
Although the sunk cost fallacy often applies to business decisions, it can be relevant across all areas of life. While it may seem rational to continue investing in something you’ve already heavily committed to, this fallacy can lead to irrational decisions.
It can impair your judgment and limit your decision-making skills.
There are times when it may be more reasonable to abandon an idea, even when you’ve “sunk” money or time into it. Because these resources cannot be recovered, some economists refer to the sunk cost fallacy as “throwing good money after bad.
Why do people get stuck in sunk cost?
Loss aversion is the unwillingness to give up after you’ve already paid for something, and so you keep on making bad decisions. In the case of over-ordered food, you might force yourself to eat all the food. Alternatively, perhaps the restaurant offers to pack the food for you for an extra $5, and you agree and still end up throwing the food out because seriously, who wants to eat soggy fries?
Regret avoidance is the refusal to accept that you made a poor decision (like buying uncomfortable shoes), leading to actions to justify the decision (like wearing the shoes). This is part of an attempt to justify yourself or others around you that you did not make the wrong decision.
- Pei Ying CHUA, LinkedIn APAC Head Economist.
Sunk cost fallacies are a challenge to avoid because you might not be aware it’s happening. You may also fall into beliefs that are pervasive in today’s culture, such as the following:
The belief that quitting is for losers
Believing there’s no gain without pain
The belief that you should feel guilty about not following through with something after taking personal responsibility
The idea of needing to get your money’s worth
Actual examples of sunk cost fallacy
When you become invested in a failing project or relationship, you may not welcome new opportunities, limiting your personal development and career growth. Recognizing examples of sunk cost fallacy enables you to identify it when encountering a similar situation.
Sunk cost fallacy examples include:
Sticking with a job even though you feel stuck and unfulfilled
Refusing to back out of a failing business because of a large initial investment
Thinking you can’t switch college majors/careers because you’ve already invested money for tuition/in the job
Continuing to write a book on a topic that no longer interests you because you’ve already done the research
Personal commitments, such as relationships, can also fall victim to this irrational thought pattern. Sunk cost fallacy relationships tend to be long-term. For example, you may choose to stay married to someone you’ve grown apart from because you have children. You may also choose to stay married because you share expensive assets, like a custom-built house.
4-Steps Framework: How you can avoid Sunk Cost Fallacy?
Everyone knows that hindsight is 20/20, and it’s impossible to accurately predict every single possible outcome. However, as things unfold and new evidence comes to light, one should always consider the latest information, set aside emotions and personal ego, and make a decision on how to proceed.
Step 1: Practice consistent self-reflection
Making sound, logical decisions requires self-reflection. Assess your feelings and goals and allow them to inform your actions. The more aware you are, the more likely you’ll make decisions with these factors in mind. The self-reflection process can help you understand your decision-making style and how you weigh your options.
Start asking yourself these powerful self-reflection questions:
Keep reading with a 7-day free trial
Subscribe to ADPList’s Newsletter to keep reading this post and get 7 days of free access to the full post archives.