• Sunk cost fallacy is trying to recover an investment that’s already gone.
• Losses stick with us much more than gains.
Image: ENOS TECHE
A couple of days before the first deadline of the Huduma Namba mass registration, I was walking past one of those long Huduma queues when I spotted some friends standing in line waiting to register. I didn’t have much else on that day so I stopped to chat.
It was a long chat. After half an hour I noticed the line hadn’t moved. Ahead of my friends in the queue were a fair number of people. It didn’t look like my friends were going to get this done today.
‘Chief,’ I said to my friends, ‘what time did you say you got here?’
They were there at 6:30am. It was now 2:40pm. They were hungry, tired, fed up, and they’d probably be back here tomorrow. But, my friends said, if it came to that, they’d return. They would be pissed, but they’d come back.
Why not just give up and go home? There were other options. Registering for the Namba at the chief’s office at a later date, meaning no queues, was an option. Then the deadline was extended, which if you’re Kenyan, was a reasonable expectation and therefore also an option.
If you’ve ever sat through a bad movie because leaving the theatre would make you feel like you wasted money, or stood in a queue for 12 hours because you’ve already put in 8 hours. Or if you’ve stayed in a relationship long after you knew it was going wrong because you’ve been together for so long, you have fallen prey to the sunk cost fallacy.
Why is it that when the smart move is to cut our losses and walk away, we don’t?
Sunk cost fallacy is the answer. Sunk cost refers to investments, in money, or time, or effort that have already been made and cannot be recovered. For example, a company spends Sh5 million to upgrade its computer system. You literally can’t resell or return the upgrade to recover that money.
Then there’s the sunk cost effect. This is the tendency for people to continue an endeavour once the investment has been made. This effect becomes a fallacy if what’s pushing you to continue in the endeavour is the sunk cost.
In other words the ‘sunk cost fallacy’ is trying to recover an investment that’s already gone. It’s what is commonly known as throwing good money (or time, or effort) after bad.
If you’ve ever sat through a bad movie because leaving the theatre would make you feel like you wasted money, or stood in a queue for 12 hours because you’ve already put in 8 hours. Or if you’ve stayed in a relationship long after you knew it was going wrong because you’ve been together for so long, you have fallen prey to the sunk cost fallacy.
It’s an experience most of us have had. We commit to a job, a project, a relationship; we go all in. And then it goes wrong. But when we know we’re in a hole, why can’t we stop digging?
The psychology behind it is losses stick with us much more than gains and so we tend to feel that if we walk away from something we’ve put a lot into, we’ll experience the loss more.
A little voice in our heads says, ‘I’ve spent all this time, money, effort, if I give up now all that will have gone to waste.’ Thing is, with sunk costs, what’s gone is gone.
What you have to ask yourself to overcome the sunk cost fallacy is, how much more am I willing lose?