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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.
Collatio igitur ista te nihil iuvat. Si alia sentit, inquam, alia loquitur, numquam intellegam quid sentiat; Quos quidem tibi studiose et diligenter tractandos magnopere censeo. Quid ergo attinet dicere: Nihil haberem, quod reprehenderem, si finitas cupiditates haberent? Erit enim mecum, si tecum erit. Dolor ergo, id est summum malum, metuetur semper, etiamsi non aderit;
Modo etiam paulum ad dexteram de via declinavi, ut ad Pericli sepulcrum accederem. Sed nimis multa. In quibus doctissimi illi veteres inesse quiddam caeleste et divinum putaverunt. Vide igitur ne non debeas verbis nostris uti, sententiis tuis.
- 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. Ne discipulum abducam, times. Negat enim summo bono afferre incrementum diem. Duo Reges: constructio interrete. Atque his de rebus et splendida est eorum et illustris oratio. Nam ante Aristippus, et ille melius. Estne, quaeso, inquam, sitienti in bibendo voluptas? Ergo ita: non posse honeste vivi, nisi honeste vivatur? Sic, et quidem diligentius saepiusque ista loquemur inter nos agemusque communiter. Profectus in exilium Tubulus statim nec respondere ausus; Quamquam id quidem licebit iis existimare, qui legerint. Quae similitudo in genere etiam humano apparet. At ille pellit, qui permulcet sensum voluptate. Omnia contraria, quos etiam insanos esse vultis. Non est ista, inquam, Piso, magna dissensio. Quod totum contra est. Hoc etsi multimodis reprehendi potest, tamen accipio, quod dant.
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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