Why do you watch a bad movie?
And the trap of sunk cost!
Have you ever started watching a movie and after a few minutes realised, it was not worth watching but watched it anyway.
If that is the case, you have experienced sunk costs.
Even though the story was shitty or the direction was poor, you still watched the movie.
Why do you do that?
If you have invested time, energy and/or money in a pursuit, you stand close to being a victim of sunk cost fallacy.
You feel like you have invested significant time in watching the movie and it would be a loss to not finish it.
In this particular example, the human tendency to know the complete story also plays a role but that may not be present everywhere.
It is a very general example and watching a bad movie may not affect your future.
But, you and I often use the same thinking to make important decisions in life.
For example, you may stay in a relationship which is tormenting you but you have already spent years in it.
You may stay in a career that you hate. You think the next promotion or the next transfer would change everything. Often, it is just sunk cost.
You may have invested $1000 in stock in the past. When the stock starts sinking, you invest more money in the same stock to recover that loss.
We would like to think so but humans are not rational decision-makers. We have a tendency to rationalise even our irrational choices.
Many cognitive biases play a role when we make decisions. We can explain sunk cost fallacy mainly with the help of two cognitive biases:
Commitment bias is our tendency to be consistent with what we have said or done in the past even when the evidence suggests otherwise. The bias is stronger if the commitment is made in public.
Loss aversion is the human tendency to prioritise avoiding a loss over a gain of similar magnitude.
You may stay in a career because, in the past, you thought, it would be the best career for you.
You may stay in a toxic relationship because you made a commitment to yourself and your partner.
Also, as you want to avoid the loss of an existing career or an existing relationship, you want to keep trying.
How to avoid the trap of sunk cost?
The answer lies in the opportunity cost.
Opportunity cost is the cost that you pay by not choosing an alternative.
By continuing what you are doing now, the option that you are missing is the cost of your current decision or the opportunity cost.
In the movie example, the cost of watching a bad movie was not just the time spent on watching it but what else you could have done with that time. You could have watched another movie, you could go out, call a friend and so on.
Sunk cost tells you how much time, energy, and money you have spent in the past and emotionally drives you to recover that.
Opportunity cost tells you what you are missing out on if you continue to do what you are doing.
Rationally thinking, the initial time that you spent figuring out if the movie was good or not, should not impact your future decisions. There is no way you can recover that time.
You need to prioritise what is best for you in the future without thinking about the cost that incurred in the past.
Sunk cost is so strong because we are emotionally triggered in the moments of loss and we often fail to think rationally.
To avoid bad decisions in such moments, you need to attain distance from yourself.
Think about what you would tell your friend or a family member in this situation?
It can help you overcome the strong emotion and stop you from making a regrettable decision.
Let me know in the comments, where you have experienced the sunk cost in your life?
Stay tuned for more!
