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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.
At ille pellit, qui permulcet sensum voluptate. Tu vero, inquam, ducas licet, si sequetur; Cur fortior sit, si illud, quod tute concedis, asperum et vix ferendum putabit? Rapior illuc, revocat autem Antiochus, nec est praeterea, quem audiamus. Nunc vides, quid faciat. Sed ad illum redeo.
Nihil enim iam habes, quod ad corpus referas; Restatis igitur vos; Nam illud vehementer repugnat, eundem beatum esse et multis malis oppressum. Cur igitur, inquam, res tam dissimiles eodem nomine appellas? Suo enim quisque studio maxime ducitur. Sed quoniam et advesperascit et mihi ad villam revertendum est, nunc quidem hactenus; Igitur neque stultorum quisquam beatus neque sapientium non beatus. Si verbum sequimur, primum longius verbum praepositum quam bonum. Sed residamus, inquit, si placet. Quaesita enim virtus est, non quae relinqueret naturam, sed quae tueretur.
- 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. Nemo igitur esse beatus potest. Nobis aliter videtur, recte secusne, postea; Sit hoc ultimum bonorum, quod nunc a me defenditur; Refert tamen, quo modo. Tum Triarius: Posthac quidem, inquit, audacius. Duo Reges: constructio interrete. Cur id non ita fit? Aliter enim explicari, quod quaeritur, non potest. Et hercule-fatendum est enim, quod sentio -mirabilis est apud illos contextus rerum. Qui autem esse poteris, nisi te amor ipse ceperit? Familiares nostros, credo, Sironem dicis et Philodemum, cum optimos viros, tum homines doctissimos. Satisne vobis videor pro meo iure in vestris auribus commentatus? Quoniam, si dis placet, ab Epicuro loqui discimus. Minime vero, inquit ille, consentit. Igitur neque stultorum quisquam beatus neque sapientium non beatus. Itaque ab his ordiamur. Gloriosa ostentatio in constituendo summo bono. Atque ab his initiis profecti omnium virtutum et originem et progressionem persecuti sunt.
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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