Why we sit in a movie theatre even if the movie is bad — Sunk Cost Fallacy
Why do we sit in a movie theatre watching a film even after we realize that this is going to be one of the worst movies we’ve ever been to?
Most of us will respond with something along the lines of, “I paid a lot of money for the tickets, so I’m not leaving now!”. But if you think about it for a second, the money that you spent is already gone. Whether you sit and watch the whole movie, or leave after the first hour, you’re not going to get back the money you spent. So, why should that impact your decision in anyway?
This is a very common example of another cognitive bias, the “Sunk Cost Fallacy”. This is where we take decisions based on how much time and energy we’ve spent till now, rather than taking decisions based on future prospects.
The Sunk Cost Fallacy is present in plenty when it comes to taking business decisions. Have you ever sat in a meeting and heard the people say, “We’ve already spent so much money on this ad campaign, we’re not going to discontinue it now”? The money that was spent on is in the past, whether it should be continued or not should solely depend on how the campaign will perform in the future.
Stock investors often fall prey to this bias. If a stock that they invested in is going down rapidly, they often tend to hold on to it with even more vigour, just because they paid a lot of money when acquiring it. But this is a wrong reason to hold onto it, they should sell the stock unless they feel that there is a prospect of it going back up in the near future.
There have been several experiments conducted to see if this cognitive bias is ubiquitous. One example I came across on the internet really hit home.
Let’s say you accidentally booked non-refundable tickets for two vacations A & B on the same weekend, A costing INR 10,000 and B costing INR 20,000. In this hypothetical scenario, most people will choose to go on Vacation B just because it is “worth” more in rupees, even if they have wanted to go on Vacation A for a long time. Ideally, your decision should only be based on which vacation you think you’ll have more fun, not on the money you spent, because that 30,000 is not coming back.
“I’ve spent the past 10 days in this online course. Even though I feel I might not gain much learning, I can’t let all my effort till now go to waste, so I’ll continue till I finish.” “I’m already full, but I spent a lot of money ordering this food, so I’ll somehow eat everything that I ordered.” If you’ve ever had similar thoughts, then you too have fell prey to the Sunk Cost Fallacy.
But what is the root cause of this cognitive bias? One word, consistency. To us humans, consistency shows credibility and contradictions show just the opposite. If we decide to drop a course midway, it shows that our thoughts aren’t consistent and that we are contradicting our past self. So, instead we decide to continue doing the course, just to delay this realization.
So, how do we overcome this bias? And should all our decisions never depend on the past?
Of course decisions can depend on the past, but only for the right reasons. Your reasons shouldn’t be to justify your actions and to put on a pretty face in public. Rational decisions can only be taken if you forget about the costs incurred till now, and instead focus on what the future looks like.
Remember, a plan is always made for the future :).
Idea Credits: The Art of Thinking Clearly by Rolf Dobelli
