Sunk Cost

Notes

Sunk Cost when an irrelevant action in the past serves as a justifiaction for a certain path in the future Path Dependence. Usually this is related to monetary issues. For example, if we spent already 20 million on a project, we will be more likely to spend 20 million more just to finish it, although stopping now would be more beneficial than completing the project under these conditions. Gambling is another common example, after spending most of our money at a casino, we tend to have "one more bet" just for the odd of breaking even, even though chances are that its better to stop now than continuing to gamble.

Even if we are aware of something being a sunk cost, we still can't easily turn it down and choose the alternative Akrasia. Perhaps because we fear the damage it will bring to our Ego, perhaps our loss makes us feel entitled to something, even if the expected utility of it is still negative. We want to have "something to show for" instead of going back empty handed.

It takes Humility to say "I've done enough, let's stop here before it gets too late". To shake yourself out of a sunk cost situation. Planning Trip Wires in advance, for example "if project not completed by x, stop it", can help us avoid the effects of sunk costs.

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🔼Topic:: Decision Making (MOC) ◀Origin:: 🔗Link::