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Highlights
- Sunk Cost Fallacy talks about the human tendency to continue with a decision even after knowing that it will not give them any extra satisfaction or comfort.
- Because of being susceptible to the Sunk Cost fallacy, humans get into a psychological trap.
- To fight the evils of Sunk Cost fallacy and dodge bad decisions, people need to act more rationally.
Humans are complex beings. Various external and internal factors influence the decisions we make in our day to day lives. Several researchers of behavioural science have coined different theories to decode why humans react in a particular way, and many fallacies have been observed over time.
Out of various behavioural patterns, a few are highly common among humans across cultures and generations. However, there is one, which is the most common fallacy. It is called the Sunk Cost fallacy.
What is Sunk Cost Fallacy all about?
Sunk Cost Fallacy talks about the human tendency to continue with a decision even after knowing that it will not give them extra satisfaction or comfort. Richard Thaler, a pioneer of behavioural science, first coined the term in the 1980s.
There are several reasons why humans react, according to the Sunk Cost fallacy. Mainly, they continue pursuing an endeavour, which would result in lesser satisfaction to them.
Why do humans have Sunk Cost fallacy?
Sunk Cost Fallacy is most common among humans. There are various reasons why people can’t leave an endeavour/task in between. Many times, it is because of commitments.
This usually happens in romantic relationships; people invest so much of their time in a relationship. Then, when the relationship doesn’t go well, they continue with it, thinking about the time and efforts they have invested in it.
Another reason is loss aversion. It suggests that people are usually more affected by the losses than the gains. For example, if someone has invested money into something, they would pursue it as much as possible, irrespective of the fact that it is not giving them much in return.
People try to recover their past expenditure, which is irrecoverable and, in the end, lose the present and future gains, which can be utilised to the fullest. For example, if a person bought a AUD 500 meal, and if they didn’t eat the entire meal, they would force themselves to eat it to get the full benefit. However, this is a flawed belief.
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How are MNCs taking advantage of the Sunk Cost fallacy?
In the present capitalist-modern world, consumers are like mere puppets to MNCs. Irrespective of whether a consumer needs a particular product, a supplier would always try to sell it.
Thus, consumers need to be highly conscious of what they are spending their money on. Otherwise, they end up recovering the irrecoverable. However, the sad reality is that businesspeople use Sunk Cost fallacy to lure more customers to get things they don’t need.
For instance, offering membership cards so that consumers are motivated to buy again. Organising flat sales and several other strategies. Thus, people should be conscious of their needs and spend accordingly.
Image source: © Rummess | Megapixl.com
Consequences of the fallacy
Because of being susceptible to the Sunk Cost fallacy, humans get into a psychological trap where they end up doing tasks that do not give them satisfaction. In pursuit of recovering the already spent, they end up paying more emotionally, financially, mentally, and even physically.
Thus, the consequences of Sunk Cost fallacy are not limited to the materialistic world. They are implied everywhere, in relationships, in personal day to day life, etc.
The need to act more rationally
The only thing that can save humans from becoming prey under the Sunk Cost Fallacy is thinking and acting more rationally. To safeguard past investments, present and future investments shouldn’t be put at stake.
By becoming conscious of decisions, people can dodge irrationality and make wiser decisions. This would help reduce excessive materialism, get out of toxic relationships, and save energy, time, and effort.
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Bottom line
So, the bottom line is that Sunk Cost fallacy exists everywhere in human society, and the corporate world is taking advantage of it. Thus, to fight the evils of Sunk Cost fallacy and dodge bad decisions, people need to act more rationally.
