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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.
Sedulo, inquam, faciam. Dolere malum est: in crucem qui agitur, beatus esse non potest. Videmus igitur ut conquiescere ne infantes quidem possint. Quarum ambarum rerum cum medicinam pollicetur, luxuriae licentiam pollicetur. Commoda autem et incommoda in eo genere sunt, quae praeposita et reiecta diximus; Quacumque enim ingredimur, in aliqua historia vestigium ponimus.
Huius ego nunc auctoritatem sequens idem faciam. Et non ex maxima parte de tota iudicabis? Ne vitationem quidem doloris ipsam per se quisquam in rebus expetendis putavit, nisi etiam evitare posset. In motu et in statu corporis nihil inest, quod animadvertendum esse ipsa natura iudicet? Summum ením bonum exposuit vacuitatem doloris; Sed haec nihil sane ad rem; Quod autem ratione actum est, id officium appellamus.
- 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. Tecum optime, deinde etiam cum mediocri amico. Sed tu istuc dixti bene Latine, parum plane. Videamus animi partes, quarum est conspectus illustrior; Non dolere, inquam, istud quam vim habeat postea videro; Deinde disputat, quod cuiusque generis animantium statui deceat extremum. Aliud igitur esse censet gaudere, aliud non dolere. Duo Reges: constructio interrete. Bonum integritas corporis: misera debilitas. Quod cum dixissent, ille contra. Bork Igitur neque stultorum quisquam beatus neque sapientium non beatus. Qui autem de summo bono dissentit de tota philosophiae ratione dissentit. Beatus sibi videtur esse moriens. Praetereo multos, in bis doctum hominem et suavem, Hieronymum, quem iam cur Peripateticum appellem nescio. Apparet statim, quae sint officia, quae actiones. Is ita vivebat, ut nulla tam exquisita posset inveniri voluptas, qua non abundaret. In qua quid est boni praeter summam voluptatem, et eam sempiternam? Qua ex cognitione facilior facta est investigatio rerum occultissimarum.
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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