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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.
Apud imperitos tum illa dicta sunt, aliquid etiam coronae datum; Ut placet, inquit, etsi enim illud erat aptius, aequum cuique concedere. Hoc unum Aristo tenuit: praeter vitia atque virtutes negavit rem esse ullam aut fugiendam aut expetendam. Non enim, si omnia non sequebatur, idcirco non erat ortus illinc. Quodsi ipsam honestatem undique pertectam atque absolutam. Quid enim ab antiquis ex eo genere, quod ad disserendum valet, praetermissum est? Hic ego: Pomponius quidem, inquam, noster iocari videtur, et fortasse suo iure. Ut aliquid scire se gaudeant? Sed quid attinet de rebus tam apertis plura requirere?
Quonam modo? Animum autem reliquis rebus ita perfecit, ut corpus; Sed quia studebat laudi et dignitati, multum in virtute processerat. At ille non pertimuit saneque fidenter: Istis quidem ipsis verbis, inquit; Hoc loco discipulos quaerere videtur, ut, qui asoti esse velint, philosophi ante fiant. In schola desinis. Si mala non sunt, iacet omnis ratio Peripateticorum. Non enim, si omnia non sequebatur, idcirco non erat ortus illinc. At cum de plurimis eadem dicit, tum certe de maximis. Quamquam id quidem licebit iis existimare, qui legerint.
- 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. Itaque ad tempus ad Pisonem omnes. Id enim volumus, id contendimus, ut officii fructus sit ipsum officium. Nam, ut sint illa vendibiliora, haec uberiora certe sunt. Nam his libris eum malo quam reliquo ornatu villae delectari. Qua ex cognitione facilior facta est investigatio rerum occultissimarum. Quamquam in hac divisione rem ipsam prorsus probo, elegantiam desidero. Nam si propter voluptatem, quae est ista laus, quae possit e macello peti? Ergo adhuc, quantum equidem intellego, causa non videtur fuisse mutandi nominis. Quid turpius quam sapientis vitam ex insipientium sermone pendere? Quid Zeno? Quod cum ita sit, perspicuum est omnis rectas res atque laudabilis eo referri, ut cum voluptate vivatur. Cetera illa adhibebat, quibus demptis negat se Epicurus intellegere quid sit bonum. Bork Duo Reges: constructio interrete. Nam et complectitur verbis, quod vult, et dicit plane, quod intellegam; Laelius clamores sofòw ille so lebat Edere compellans gumias ex ordine nostros.
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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