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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.
Itaque rursus eadem ratione, qua sum paulo ante usus, haerebitis. Cupit enim dícere nihil posse ad beatam vitam deesse sapienti. Utrum igitur tibi litteram videor an totas paginas commovere? Dic in quovis conventu te omnia facere, ne doleas. Moriatur, inquit. Nam, ut sint illa vendibiliora, haec uberiora certe sunt. Quod maxime efficit Theophrasti de beata vita liber, in quo multum admodum fortunae datur. Non ego tecum iam ita iocabor, ut isdem his de rebus, cum L. An eum discere ea mavis, quae cum plane perdidiceriti nihil sciat? At modo dixeras nihil in istis rebus esse, quod interesset.
Duo Reges: constructio interrete. Quae cum praeponunt, ut sit aliqua rerum selectio, naturam videntur sequi; Quod, inquit, quamquam voluptatibus quibusdam est saepe iucundius, tamen expetitur propter voluptatem. Theophrasti igitur, inquit, tibi liber ille placet de beata vita? At ille non pertimuit saneque fidenter: Istis quidem ipsis verbis, inquit; Cum id quoque, ut cupiebat, audivisset, evelli iussit eam, qua erat transfixus, hastam. Sic consequentibus vestris sublatis prima tolluntur. Quis enim potest istis, quae te, ut ais, delectant, brevibus et acutis auditis de sententia decedere?
- 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 in odium veniam, si amicum destitero tueri. Qualis ista philosophia est, quae non interitum afferat pravitatis, sed sit contenta mediocritate vitiorum? Quae qui non vident, nihil umquam magnum ac cognitione dignum amaverunt. Nihilo magis. Duo Reges: constructio interrete. Urgent tamen et nihil remittunt. Quis, quaeso, illum negat et bonum virum et comem et humanum fuisse? Si stante, hoc natura videlicet vult, salvam esse se, quod concedimus; Vitiosum est enim in dividendo partem in genere numerare. Et ais, si una littera commota sit, fore tota ut labet disciplina. Itaque haec cum illis est dissensio, cum Peripateticis nulla sane. At habetur! Et ego id scilicet nesciebam! Sed ut sit, etiamne post mortem coletur?
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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