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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.
Nunc haec primum fortasse audientis servire debemus. Bork Hoc etsi multimodis reprehendi potest, tamen accipio, quod dant. Quae cum ita sint, effectum est nihil esse malum, quod turpe non sit.
Odium autem et invidiam facile vitabis. Eorum enim est haec querela, qui sibi cari sunt seseque diligunt. Nunc omni virtuti vitium contrario nomine opponitur. Sed utrum hortandus es nobis, Luci, inquit, an etiam tua sponte propensus es? Iubet igitur nos Pythius Apollo noscere nosmet ipsos. Hoc est dicere: Non reprehenderem asotos, si non essent asoti.
- 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. Quid adiuvas? Sed ille, ut dixi, vitiose. Quamquam id quidem, infinitum est in hac urbe; At ille pellit, qui permulcet sensum voluptate. Nulla profecto est, quin suam vim retineat a primo ad extremum. Non quaero, quid dicat, sed quid convenienter possit rationi et sententiae suae dicere. Saepe ab Aristotele, a Theophrasto mirabiliter est laudata per se ipsa rerum scientia; Vulgo enim dicitur: Iucundi acti labores, nec male Euripidesconcludam, si potero, Latine; Non quam nostram quidem, inquit Pomponius iocans; Ut in geometria, prima si dederis, danda sunt omnia. Duo Reges: constructio interrete.
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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