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This model is a reminder to cut your losses and focus on future opportunities rather than getting pulled down by past decisions.
Itaque nostrum est-quod nostrum dico, artis est-ad ea principia, quae accepimus. Quid igitur dubitamus in tota eius natura quaerere quid sit effectum? Eam si varietatem diceres, intellegerem, ut etiam non dicente te intellego;
Quid enim de amicitia statueris utilitatis causa expetenda vides. Sed tamen enitar et, si minus multa mihi occurrent, non fugiam ista popularia. De vacuitate doloris eadem sententia erit. Summum ením bonum exposuit vacuitatem doloris; Fortitudinis quaedam praecepta sunt ac paene leges, quae effeminari virum vetant in dolore. Sit hoc ultimum bonorum, quod nunc a me defenditur; Si qua in iis corrigere voluit, deteriora fecit. Minime vero istorum quidem, inquit. Hoc est non dividere, sed frangere. Illa argumenta propria videamus, cur omnia sint paria peccata.
- Ask, ‘does this cost have an impact on what will happen in the future?’
Identify Sunk Co ... Lorem ipsum dolor sit amet, consectetur adipiscing elit. Expectoque quid ad id, quod quaerebam, respondeas. Ut in geometria, prima si dederis, danda sunt omnia. An dolor longissimus quisque miserrimus, voluptatem non optabiliorem diuturnitas facit? Beatus sibi videtur esse moriens. A mene tu? Duo Reges: constructio interrete. Quaesita enim virtus est, non quae relinqueret naturam, sed quae tueretur. Hosne igitur laudas et hanc eorum, inquam, sententiam sequi nos censes oportere? Habes, inquam, Cato, formam eorum, de quibus loquor, philosophorum. Quamvis enim depravatae non sint, pravae tamen esse possunt. Est enim effectrix multarum et magnarum voluptatum. Illa argumenta propria videamus, cur omnia sint paria peccata. Quid in isto egregio tuo officio et tanta fide-sic enim existimo-ad corpus refers? Quid igitur dubitamus in tota eius natura quaerere quid sit effectum? Qualem igitur hominem natura inchoavit? Cupit enim dícere nihil posse ad beatam vitam deesse sapienti. Nec lapathi suavitatem acupenseri Galloni Laelius anteponebat, sed suavitatem ipsam neglegebat; Sed quanta sit alias, nunc tantum possitne esse tanta. Nihil minus, contraque illa hereditate dives ob eamque rem laetus. Quasi vero, inquit, perpetua oratio rhetorum solum, non etiam philosophorum sit. Quae quidem vel cum periculo est quaerenda vobis;
Identifying a Sunk Cost can be difficult when there is no precise way of comparing a loss to a gain. The desire to not appear wasteful also can limit your ability to base a decision on relevant costs exclusively, especially when you feel personally responsible for the investments representing sunk costs.
The Concorde Fallacy.
The Concorde Fallacy is an alternative name for the sunk cost fallacy, coming from the way the British and French governments continued to co-fund the development of the expensive Concorde supersonic aeroplane even after it became financially untenable. Their previous investment, financially and politically, was thought to determine the ongoing funding.
Eat too much?
A common example of the sunk cost fallacy is when someone buys a large meal, then overeats to ensure ‘they get their money worth’.
The sunk cost fallacy is an unconscious bias that arises from accounting and financial domains. It is an important consideration in decision making.
Use the following examples of connected and complementary models to weave the sunk cost fallacy into your broader latticework of mental models. Alternatively, discover your own connections by exploring the category list above.
Connected models:
- Cost-benefit analysis: to consider actual pros and cons of a choice
- Opportunity cost: to consider the potential loss of a future facing decision.
Complementary models:
- First principle thinking: in breaking down a situation to its basics.
- Inversion: considering the opposite, e.g. ‘how can we continue to make that loss again?’
- The Lindy effect: to challenge sunk costs and seeing past longevity as a potential positive.
- Availability heuristic: being overly impacted by immediate situations and losses.
- Lock-in effect: is there greater friction to breaking from the status quo.
Read N. Gregory Mankiw’s Principles of economics for information on various economic theories that involve the concept of sunk costs.
This brief article references some of the relevant studies arising from Behaviorual Economics and the Sunk Cost fallacy. Check this video resource for a quick overview of the sunk cost concept and how it applies to the Concorde supersonic plane case.
My Notes
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