Fallacies are cognitive biases through which reality is veiled, giving an appearance of verisimilitude to what is essentially uncertain or directly false. Almost all people have incurred them at some time, and/or have been “victimized” by those of someone else, at least at some point in their lives.

Most fallacies lead to deception of third parties, but there are also those that only distort the truth of the speaker, to the point that they curtail his ability to make good decisions in a problematic situation.

In this article we will dwell on the fallacy of the sunken cost or Concorde (in homage to an airplane created by the French government and which meant enormous losses for this country), which has been the object of much research because of how it can come to condition the destiny of those who fall between its nets.

Basic principles of the sunken cost fallacy

The sunken cost fallacy is perhaps one of the most common cognitive biases in the life of every human being . It is also known that, on multiple occasions, it has very serious consequences for those who incur it (as well as for their immediate environment). The convergence between its frequency and its potential harm makes it an object of great interest for psychology, logic and even economics. Even if we insist on believing the opposite, sometimes our decisions are far from being rational and complete.

A sunk cost is understood as any investment that, due to objective circumstances, is deemed to be absolutely unrecoverable . Such an investment may be understood in temporal terms, as a significant outlay or as the satisfaction of what was once perceived as a basic need for happiness and/or self-fulfilment. Thus, this concept includes any relevant past effort for which any expectation of return, cushioning or compensation has been diluted.

It is also known that the appreciation one has for what was invested in (it may be a work project, a relationship, etc.) is directly proportional to the amount of personal effort required, in terms of emotional attachment or expectations of results. And at the same time, it is well known that the greater the attachment to anything, the more difficult it is to let go of it or to abandon efforts to keep it afloat. All that is outlined here is the foundation on which the sunk cost fallacy is built.

The main problem with this fallacy lies in the decision-making processes involving that person or project to which our past, sometimes titanic and constant efforts are attached. Despite the fact that there is no option to recover the investment they represented, we continue to keep the past in mind when assuming alternatives of change for the present ; since we usually refuse to lose everything that it once cost, or to liquidate the expectations that once motivated us to undertake what we would leave behind today.

With the incorporation of the loss, located in the past and completely unrecoverable, the decision-making process is conditioned by elements that are alien to rationality (understood as the weighted analysis of the potential benefits and disadvantages in both the short and long term). In this way, options aimed at obtaining positive things (a better job, a relationship that brings us more happiness or simply the cessation of some economic haemorrhage) would not be chosen, but rather the final purpose would be to avoid something for which it is certainly already too late .

The consequences of this fallacy can be truly dramatic, and are often at the root of personal failures and economic disruptions. In fact, it is a concept that the economy has rescued in order to understand what lies dormant behind the losses of its clients’ wealth. We will now look at how it can lead people to act, and why it often leads to situations that only deepen the problem.

What is this fallacy and how does it work

In short, the sunken cost fallacy is a cognitive bias that consists in giving value to a relevant personal investment from the past, and clearly unrecoverable, in order to keep afloat a project whose expectations are very discouraging. In this way, the effort would be maintained by the expectation of recovering what has been given (money, time, etc.) without realizing that it is really something that will never return. In short, a refusal to give in to a threatening reality because of the fear we have of assuming the loss, which can end up making the situation seriously worse.

Most of us have experienced in our own skin the difficulty to give up, to give up on something even though we are aware that it is a lost cause. It is, in fact, a harmful way of insisting ; which harbours the hope that a stroke of luck (or hitting the button) will diametrically change the situation and we will be able to straighten out our course in an ocean whose waves threaten to sink us under its unfathomable depths.

The fallacy of the sunken cost is a bias that prevents us from detaching ourselves from the past by the emotional attachment we forge with it, even though it has no resonance for the present. It often involves maintaining all efforts toward something that no longer brings us happiness. This happens because we become victims of an unsolvable dissonance: “I have invested a lot, everything I had, in this… I cannot abandon it now, because it has not yet brought me anything good.

Some mental health problems form around this fallacy, especially pathological gambling. In these cases, the behaviors that are carried out (bets, games in some slot machine, etc.) generate losses and interpersonal conflicts of immeasurable magnitude, but the affected person maintains the habit because he has already “lost too much” and cannot afford to “abandon his effort”, without first having recovered at least a little of his investment. Obviously, the consequence is that the problem becomes worse and worse , unfolding what is known as “hunting” (asking for money from acquaintances with the aim of recovering from losses).

Furthermore, it has been described that this fallacy also affects us when the one who makes the efforts is an individual we admire or love. Thus, if a person we hold in high esteem asks us for something and we do not want it, most of us will tend to give in and end up doing it (in compensation for someone else’s investment, not our own). This is a familiar experience for a very relevant percentage of the general population, and it is the extension of this sunken cost fallacy to the social dimensions.

Some examples

In order to clarify how this fallacy or bias is expressed, we will see some concrete examples of different forms it can take according to what has been previously referred to.

1. A ruined project

Philip was young, and as such he burned with a desire to carve out a future with his own hands in which to live fully. For many years he combined a (weekend) job with his training, saving as much as possible to build his own business one day. When he had just laid his hands on that hard-earned diploma, he was already fantasizing about the life he had always wanted for himself, building castles in the air about what his days would be like from then on.

Unfortunately, Felipe was still unaware that, despite all this enthusiasm, his project was going to be a failure that would lead him to lose everything he had saved during his youth . More than a year had passed, and the losses of his restaurant were increasing wildly, with no indication that the situation would ever change. Despite this, and because he had invested too much in the opening, he decided to ask some people he trusted for money in the hope of making a comeback in the future.

2. Where are we going?

Vanessa and Miguel had been together for ten years, and in that time they had gone through all kinds of situations. Lying on a cold bed, appreciating the darkness that crept across the room’s ceiling, she meditated on her life with him. The first few years were perhaps the most difficult, for her family did not accept the man she had chosen as her partner, and she struggled against all odds to stay by his side in the worst possible scenario. Nevertheless, he remembers that period as an adventure in which he learned a lot about what life really was.

The sound of the crickets reached his ears, on that night that seemed eternal. Because I didn’t love him anymore, in fact I hadn’t felt the same for at least five years . He hoped that the morning light would bring with it the strength he needed to articulate the words that would lead them to the end of the shared path. It no longer made him happy, but he refused to believe that a story like his would die in such a mundane and sad way. They had spent so much time together… she was a mess of doubts. One more night, like so many before.

3. A bad looking cake

It was a Sunday afternoon. As on other occasions in the past, Grandma Carlota brought what used to be a fantastic carrot cake for dessert. Not for nothing, she was a woman who had become well known for a recipe whose birth dated back to times that only she could remember. The years were beginning to accumulate in her snowy hair, and she was unfortunately entering the winter of her life. But at that moment, in the light of a dying autumn afternoon, the family ritual would begin. It was the only thing that mattered.

The smile on his face was just as it had always been, as was the theatrical gesture with which he displayed his exalted creation. On that day, however, what everyone had been waiting for with unbridled anticipation turned out to be the most unexpected of horrors: it was not grandmother’s cake, but a shapeless mass that looked dangerous to health, emitting a strange smell that immediately made the dog escape amidst pitiful sobs of panic.

Silence was made. Everyone looked at each other first, and at Grandma right after, with her smile on her face. The usual smile. “That looks good!” someone somewhere lied. With trembling hands and heart in a fist, fearing that it was “poisonous”, everyone swallowed the usual generous ration. Because the woman, who always gave everything and had gotten up early to prepare the food with love, deserved it and a lot.

Bibliographic references:

  • Krämer, A. (2017). Demystifying the “Sunk Cost Fallacy”: When Considering Fixed Cost in Decision-Making is Reasonable. Journal of Research in Marketing, 7, 510-517.
  • Friedman, D., Pommerenke, K., Lukose, R., Milam, G. y Huberman, B. (2007). Searching for the Sunk Cost Fallacy. Experimental Economics. 10. 79-104.