Does this sentence sound familiar?
"I can't quit doing this. I already put so much time/resources/money into it."
We have all said it about something at some point our lives. Sometimes, it is a really positive way to keep our momentum going on something we have already started. But often, it is a sentence that holds us back from taking the next steps.
I hear students and clients say sentences like:
- "I can't switch my major now because I'm already committed to this degree."
- "I already paid for that ticket, so now I have to go to the event."
- "I invested a lot into this one side hustle, so I can't give up on it and try something new."
In research, we call it the sunk cost fallacy.
Basically, it is the idea that you have to keep going because of all the time/resources/money you've already spent. We're very "loss averse" as humans. We hate to lose things or abandon projects, even when they aren't working. Behavioral economists and cognitive psychologists have conducted really insightful research about this topic. An easy to read summary with references is over here on the "You are Not So Smart blog" by David McRaney.
Even when we recognize there is a mistake in our thinking, it is hard to take the next steps.
Okay, so you get that something in your life may have sunk costs. My latest example has been a race I signed up to run. I paid for the race months ago, not anticipating I might be burnt out on running, have broken my pinky toe, and not really trained for the race. I COULD have said, "I have to go run this race because I already paid for the ticket."
But there are better questions to ask yourself to avoid the sunk cost fallacy. Instead, just a few days before the race, I told myself, "Okay. You already paid for this race, whether or not you actually go and run it. Will you still enjoy going to the race, even if you have to walk it?" The answer was yes. I still wanted to go. But I didn't force myself to go or force myself to "get my money's worth." Because remember, I had already paid for my ticket. It was a sunk cost.
Questions to Ask Yourself to Avoid the Sunk Cost Fallacy:
- What is the "thing" that will not change, regardless of my next steps? This could be money, time, resources spent, etc. Recognize the "sunk costs."
- What do you want to get out of your next steps? Do you want to enjoy yourself, follow your passion, make more money, or give something up because it is no longer working?
- If you look at your answer to #2, does it change your #1? The answer should always be NO if it is a true sunk cost fallacy.
- So since you can't change the answer to #1 - what will you do next? How will you move forward?
What's your scenario where you might be dealing with sunk costs?
Share below in the comments or send me an email and we'll help you strategize. Sometimes it is confirming your thoughts with another person that helps you move forward with your next steps!