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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.
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- 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. Te enim iudicem aequum puto, modo quae dicat ille bene noris. An vero, inquit, quisquam potest probare, quod perceptfum, quod. Et hunc idem dico, inquieta sed ad virtutes et ad vitia nihil interesse. Sin kakan malitiam dixisses, ad aliud nos unum certum vitium consuetudo Latina traduceret. Quis non odit sordidos, vanos, leves, futtiles? Duo Reges: constructio interrete. Nihil enim arbitror esse magna laude dignum, quod te praetermissurum credam aut mortis aut doloris metu. Atque haec ita iustitiae propria sunt, ut sint virtutum reliquarum communia. Quod idem cum vestri faciant, non satis magnam tribuunt inventoribus gratiam. Atqui reperies, inquit, in hoc quidem pertinacem; Quantum Aristoxeni ingenium consumptum videmus in musicis? Multoque hoc melius nos veriusque quam Stoici. Tenent mordicus. Hoc enim constituto in philosophia constituta sunt omnia. Aliud igitur esse censet gaudere, aliud non dolere. Audeo dicere, inquit. Quodcumque in mentem incideret, et quodcumque tamquam occurreret. Graece donan, Latine voluptatem vocant. Ut optime, secundum naturam affectum esse possit.
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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