In economics, there’s a concept known as the sunk cost fallacy. The sunk cost fallacy occurs when someone makes a decision based on their previously invested time or resources.
The classic example occurs when you buy something that you end up not needing or enjoying, but you force yourself to use it anyway because you don’t want the money to go to waste.
You’re actually making yourself less happy than if you simply discarded it because you want to justify the money you spent.
Another example is when a company spends a ton of money on an ad campaign that bombs. But rather than discontinuing the campaign, they need to feel like they got some return for all of the time and money invested, so they continue to run it even though it loses money.
The sunk cost fallacy is also illustrated in the saying, “throwing good money after bad.”
People don’t want to quit the job that underpays them because they don’t want to feel as though they wasted the last five years of their life.
Businesses don’t cut wasteful spending because management doesn’t want to admit they were wrong about something.
Governments don’t surrender when losing a war because they don’t want people to feel as though their soldiers died for nothing.
In economics, the sunk cost fallacy is seen as purely irrational. Bob should quit his job at Acme. He can make more money elsewhere. But Bob stays. Why? Because Bob trained for years to work at Acme and he doesn’t want that training to be “wasted.”
But the sunk cost fallacy usually only appears to be a fallacy because we measure the output in terms of money.
Perhaps Bob doesn’t leave Acme because he values his pride and his identity as an Acme engineer more than he does the extra money he’d make elsewhere. Perhaps he’s afraid of dealing with the uncertainty of the job market. Perhaps his closest friends work at Acme and he’s afraid of leaving them behind.
While economists focus on the financial irregularities of the fallacy, to me, the fallacy is most illustrative when we look at the emotional side effects. For example, the most common place I see the sunk cost fallacy is not in a casino or in business or in government.
It’s in relationships.
Sunk Costs in Relationships
We all know someone (or perhaps we are that someone) who is in a bad relationship and continues to stay in that bad relationship. Neither person is happy. Everybody knows they aren’t happy. Yet the two people stay. For years and years and years, people hang on.
It’s easier to fight the sunk cost fallacy in work situations and financial situations because you can actually sit down and do the math.
But there’s no math for relationships.
There’s no spreadsheet to calculate the expected costs of the pain of breaking up versus the misery of coming home every day to somebody you don’t want to see.
But when it comes to emotions, we are terrible at accurately gauging how we will feel in the future and how important those feelings are.
For example, we generally overestimate the significance of feeling a large amount of pain today and underestimate the significance of feeling small amounts of pain over years and years.
Therefore, we stay in a bad relationship. We stay in the shitty job. “I’ll just give it another year,” we say, because another year feels bearable in the moment. Whereas destroying our relationship feels unbearable.
In this sense, we throw away good relationships after bad. Because every year we stay in a bad relationship, we’re missing the opportunity to find a good relationship.
And while, on paper, that may be easy to see, it certainly isn’t easy to feel.