Imagine you go to see a play which costs $10 for a ticket. When you open your wallet or purse you realize that you’ve lost a $10 bill.
Would you still pay for the ticket? There’s a good chance you would – only 12 percent of people say they wouldn’t.
Now, imagine you go to see the movie and pay $10 for the ticket, but right before you hand it over to get inside you realize you’ve lost it.
Would you go back and buy another ticket? Maybe, but this scenario hurts a bit more and no less than 54% of people would skip the movie if this was to happen. (1)
But when you think about it, the situation is exactly the same. You lose $10 and then must pay $10 to see the movie. Somehow, the second scenario still feels different than the first one. Say hello to…
The Sunk Cost Fallacy
In the second scenario you feel like the money was assigned to a specific purpose and then lost. And loss sucks. In fact, it sucks so much that we start acting irrationally when facing it.
Economists refer to this as the “sunk cost fallacy” – the tendency for people to be more likely to continue with a project if they have already invested a lot of money, time, or effort in it, even when continuing is not the best thing to do.
The sunk cost fallacy is irrational, and could be described as “throwing good money after bad”.
You can probably think of several examples of occasions where you’ve let this fallacy determine your behavior:
- ”Man I’m full, but I might as well keep eating because I’ve already bought/cooked the food and I don’t want it to go to waste.”
- ”Wow this movie sucks, but I might as well keep watching because I’ve watched an hour of it already.”
- ”This class is completely useless but I might as well keep going because it’s already paid for.”
Or, even worse:
- ”I know this person is bad for me, but I might as well stay in the relationship because I’ve already invested so much time and energy into it.”
Economists argue that sunk costs should not be taken into account when making rational decisions. In all of the examples above, the time and effort has already been lost so that part of the decision no longer affects the future.
You now have two choices. You can either:
- Lose the investment and suffer from sticking to it, or;
- Lose the investment and use your time to do something more fun.
An economist will suggest that, since the second option involves suffering in only one way (investment lost), while the first involves suffering in two (investment lost plus wasted time), option two is obviously preferable.
Don’t Break the Chain
Becoming aware of the sunk cost fallacy is a great first step to freeing yourself from making poor decisions. Paying attention to this flawed thinking will help you make more rational decisions in the future.
And that’s great, but that’s not the main purpose of this article. Let me explain…
You can use this naturally occurring tendency of sticking with investments to your advantage as you pursue different goals in life.
Comedian Jerry Seinfeld does this brilliantly with a technique he calls ”Don’t break the chain”.
According to Seinfeld the way to become a better comic is to create better jokes. The way to create better jokes is to write every day.
To do this he uses a very clever system to motivate himself to write. He uses a big wall calendar that has a whole year on one page and hangs it on a prominent wall with a red marker next to it.
Then, each day when he completes his joke writing, he puts a big red X over that day. After a few days he has a chain. Then he keeps at it and watches the chain grow longer every day.
He explains that by using this technique ”You’ll like seeing that chain, especially when you get a few weeks under your belt. Your only job next is to not break the chain.” (2)
This is a brilliant way to get the sunk cost fallacy to work in your favor.
Warning: Beware of the “What-the-Hell-Effect”
Now, there is one fair warning that needs to be addressed before you put this technique to use, and that is called the ”What-the-Hell-Effect”. (3)
Have you ever found yourself thinking: ”Oops! I certainly didn’t mean to finish that entire big piece of pie. There goes my diet. Oh well, what the hell! Since I’ve blown my diet, I might as well have another piece. Uh-oh. TWO big pieces. Now, I’ve really done it. Oh, what the hell. Might as well have a third piece…”
In that case, you’ve experienced the ”What-the-Hell-Effect”. You have a small slip up, and the next thing you know all your long-term plans are momentarily out the window. Depending on your personality and what you tell yourself, you might end up binging the rest of the meal, day or even the entire holiday season.
The ”What-the-Hell-Effect” is a big threat to the ”don’t break the chain”-technique because it may cause you to drop your new pattern altogether if you happen to slip up and break a nice long chain you’ve been building.
To avoid this nasty scenario, you can employ the ”Never Miss Two Days”-rule. If you for some reason should miss one day I suggest still putting an X on that day (perhaps in a different color) and keep the chain going. Only start a new chain if you mess up two days in a row or more.
Research has shown that missing one day doesn’t have any negative effects on habit formation (4) so it’s okay to slip up once in a while without having to start completely from scratch.
How to Reach Your Goals: Time to Get Yourself Addicted
Right now I’d like you think of a new behavior you’ve been struggling to stick with. Then commit to it by either getting a calendar and some markers or a habit formation app like lift.
Then try the ”don’t break the chain”-technique for at least 30 days to make sure you get your sunk cost fallacy going.
Once you get yourself addicted to your progress you might just find it harder to quit than to keep going.