
The sunk cost fallacy - happy-go-lucky
http://www.bbc.com/capital/story/20180914-the-trick-to-learning-when-to-cut-your-losses
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dwaltrip
An interesting twist: sometimes it may be worth finishing purely for the
psychological boost of confidence, or other similar meta, 2nd order effects.

I don't have a good algorithm for knowing when this is the case, but
especially for smaller individual-level projects, I think it is probably not
that uncommon. It also seems highly context dependent -- e.g. if one hasn't
had a win in a while, it should be a larger consideration.

Framed another way: first learn how to finish projects, then learn how to
finish the right project.

And of course, there is the problem that all outcomes and evaluations of
worthiness have at least some uncertainty, if not significant amounts.

The sunk-cost fallacy is a useful tool, but it isn't always easy to apply in
practice.

~~~
daveFNbuck
Those effects are compatible with a proper understanding of the sunk cost
fallacy. The 2nd order effects are future benefits that can make the project
worth completing. The point is that it's the magnitude of the benefits you
expect to get that matters and not the amount of resources you've already
spent.

~~~
dwaltrip
Totally. But I think 2nd order effects are often underappreciated, and the
difficulty of evaluating them does take some of the "oomph" out of the sunk
cost fallacy.

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everdev
> Ever gone to the cinema and stayed to the end of a film you actually loathed
> 10 minutes in?

I think the author is assuming that what preceded will therefore follow. Hate
the first 10min? The rest of the movie will be bad. Lose $100 gambling? You'll
keep losing.

I think people evaluate more based on percentages and alternatives. What's
else an I going to do if I leave the movie early? What are the odds of me
enjoying that activity versus the chance the movie night turn around or the
value I'll get from being able to knowledgeably talk about the film with
friends.

Or, did I lose the money gambling from making bad bets or is it just the
natural up and down? For example, if you sell a stock every time it goes down
in value, you'll be pretty broke.

I think people choose to carry on with diminishing or unlikely returns if the
likelihood and magnitude of the turnaround is sufficiently more attractive
than stopping. That reasoning makes perfect sense as long as you're evaluating
your options accurately.

I was always taught not to consider sunk costs in your decisions, just know
where you stand in the present and think about what you want in the future.
What happened in the past can't be undone.

~~~
Jtsummers
The author understands the fallacy just fine. As do you. The flaw is your
assumption in paragraph 5. People give the sunk costs greater weight than you,
and so you seem to be assuming this fallacy doesn’t really exist.

They stick with a bad movie because they spent the ticket money. Not because
they expect the actors to have received lessons and coaching that makes act 3
an Oscar contender. Dinner with their friends would be a better return (for
the evening) but they get caught up in that $10 they spent and the “loss” of
that if they walk out.

~~~
sverige
>Not because they expect the actors to have received lessons and coaching that
makes act 3 an Oscar contender.

This is the actor fallacy. Sure, there are good and bad actors, but what makes
a movie (or play) worthwhile is the script, then the director, then other
stuff like cinematography, set decoration, lighting, etc. Actors are actually
the most replaceable and least important part of the equation.

Counterintuitive, I know, especially in light of the publicity machines that
are at work 24/7\. And for goodness' sake, don't mention this to the actors.

So if the plot premise sucks in the first 10 minutes, you might as well bail
out then. It ain't gonna get better.

~~~
Jtsummers
Fair enough. It was one element of the whole thing and I could’ve listed more.

~~~
sverige
Sorry, I'm a pedant by nature. I was not trying to pick at you. It's something
I learned early that most people misunderstand. I'll return to my usual
grammar correcting now. :O

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radford-neal
The article never clearly states what they consider the fallacy to be. So it's
maybe not surprising that they seem to actually not understand it. They say:

QUOTE: After you’ve invested £10 million ($13m) in a project, which hasn’t
delivered, the case for throwing in a further £5 million is far easier to
justify if you only consider returns on £5 million – rather than £15 million.
But in reality, of course, you also don’t want to look stupid by abandoning
it.

But it is CORRECT to consider only the 5 million additional investment when
deciding whether to continue the project. Of course, it's not correct (from
the organization's point of view) to consider whether you (the employee) will
look stupid if it's abandoned. That would be some sort of fallacy. But what is
usually in my experience called the "sunk cost fallacy" is the opposite -
insisting that to justify continuing the project, it's necessary for it to pay
back the whole 15 million, even though 10 million of that is a sunk cost.

~~~
daveFNbuck
I think they're saying it's correct to only consider the 5 million, then
pointed out that you're also biased in that way for other reasons.

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codingdave
"It is never too late to give up."

I know it sounds like a de-motivational poster, but it nicely summarizes this
entire concept.

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codr4
I've tried to explain this to one of my (former) employers, he just couldn't
wrap his head around it.

Of course it matters, I paid a fortune for whatever. Yeah, right.

It's really about being here and now, and may be applied to anything in life.

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CM30
I have to be honest, I think entertainment may be one of those things where to
some degree the sunk cost fallacy may not be 100% accurate. I mean yes, I see
the reasoning behind this:

> We all do it. Ever gone to the cinema and stayed to the end of a film you
> actually loathed 10 minutes in – or watched yet another season of what was
> once your favourite TV show?

But TV shows, films, books, games... they've all got many examples of works
which either start out terrible and get much better as they go along or start
out fantastic and fall to pieces later down the line. Someone who takes this
fallacy seriously all the time wouldn't read/watch Lord of the Rings long
enough for the party to leave the shire. They probably wouldn't reach the
first dungeon in The Legend of Zelda Twilight Princess (which is sometime
after about 2 hours of tutorial content and meandering intros). Hell, TV
Tropes has a whole list of works where you have to sit through hours of boring
filler before getting to the interesting stuff:

[https://tvtropes.org/pmwiki/pmwiki.php/Main/SlowPacedBeginni...](https://tvtropes.org/pmwiki/pmwiki.php/Main/SlowPacedBeginning)

There's also the related idea of a show/work 'growing the beard', where it
really picks up later on as the writers/actors/directors/whoever finally get
into their stride.

So it's not necessarily a fallacy to sit through a tedious or even bad work
under the assumption it'll get better, because in quite a few cases, that's
exactly what does happen.

~~~
dirkgently
> But TV shows, films, books, games... they've all got many examples of works
> which either start out terrible and get much better

But for one good example, how many bad examples are there? You are willing to
sink your cost by betting on, say, 10% chances that a dud movie is going to
turn out to be better.

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dredmorbius
See also; the sunk-cost-fallacy fallacy.

Naaive accounting based only on financial costs, excluding switching costs,
other complementary investments, psychological costs, unbooked benefits, etc.,
may justify at least dome behaviours typically branded as SCF.

[https://xebia.com/blog/sunk-cost-fallacy-
fallacy/](https://xebia.com/blog/sunk-cost-fallacy-fallacy/)

[https://modleft.blogspot.com/2005/09/sunk-cost-fallacy-
falla...](https://modleft.blogspot.com/2005/09/sunk-cost-fallacy-fallacy.html)

[https://econundead.com/2015/09/20/the-sunk-cost-fallacy-
fall...](https://econundead.com/2015/09/20/the-sunk-cost-fallacy-fallacy/)

[http://www.gwern.net/Sunk-cost](http://www.gwern.net/Sunk-cost)

~~~
BeetleB
I looked at the first link, and it has little to do with the sunk cost
fallacy. If you're not factoring in the cost to switch, you are simply making
poor estimates for your costs.

I have a business now that I've sunk $100K into. I have an option to abandon
it and move across the country for a salaried job. I need to estimate whether
I'll have more money with the job vs my business 5 years from now. If I
estimate it wrong by not taking into account the cost to move, or the COL of
the new city, it has nothing to do with the sunk cost fallacy.

For the 2nd link, I've never heard an argument using sunk cost that would say
one should buy the jumper. This seems like a strawman.

~~~
dredmorbius
I'll admit that this was a quick grab at some references. I've seen several
better, though Gwern's essay is pretty good. I don't have the others readily
at hand.

The failure to account for switching or information costs _is_ fairly common
among misuses of SCF, and looking as to why that is may be fruitful.

SCF is not _completely_ wrong, but analyses claiming it are very frequently
incomplete.

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twtw
I first read about this when I was a teenager, and frequently think about it
when making decisions, but have never once found that being aware of it has
been helpful. In the face of uncertainty, you never know what is going to
happen. I have never experienced a situation where I have poured money into
something and it became "obvious" (for a rational agent) that i could do just
as well by abandoning that previous effort.

I would be very interested in hearing other's experiences.

~~~
gumby
Very useful in business. It's tempting to agree with, "Hey, that $60M got us
almost all the way there; for only 6M more we can finish!" But the real
question is "Shall we spend $6M for a product that we think will generate
$3M/year in years 3-5 after launch?"

Or if you prefer, "We've spent two years building the test infrastructure for
our legacy product, and are within a quarter of finishing. Looking forward,
will we generate enough support revenue to justify investing 10 people for a
quarter (plus documentation)? Or have most of our customers migrated by now?"

~~~
Dylan16807
> Very useful in business. It's tempting to agree with, "Hey, that $60M got us
> almost all the way there; for only 6M more we can finish!" But the real
> question is "Shall we spend $6M for a product that we think will generate
> $3M/year in years 3-5 after launch?"

That's such a lopsided question it's hard to try to connect it to reality,
though. If the expected profit is $9M then how did you manage to spend $60M in
the first place? Something huge happened that changed the picture, and makes
it hard to relate as a simple "sunk cost" example.

~~~
gumby
That’s precisely the point. You might have launched that project two years ago
thinking it wouldn’t take too long and would be a nice little earner for your
(then) last generation product. Well instead of six months it took two years
and now that legacy product is two generations old and most customers have
migrated...but it’s finally almost done and you _do_ still have some customers
using it, and gosh, look we’ve already spent $60M; what a shame to throw it
all away when for only a little more.... people make decisions this way all
the time.

These decisions also consume labor. Despite all the work put in, is it really
worth finishing that refactoring or should you just abandon it all?

~~~
Dylan16807
> That’s precisely the point.

No, I don't think you're getting my point.

You made it such a huge gap, and _not explained it_ , that it made me unable
to properly comprehend the scenario. The psychology of sunk cost is influenced
by how we got here, and you threw out such an extreme example that it
overwhelmed my attempts to get into that somewhat-subtle psychology.

So if you're saying that the product is already obsolete, and has lost more
than 90 percent of possible revenue... that's not really a typical scenario,
where you still expect to make a pile of money like in the original plan, you
just need to get that last.. bit.. done. And in that scenario the sunk cost
fallacy is probably not in your top ten problems either, even if you do listen
to it.

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madeuptempacct
There is a (long) argument here ([http://www.gwern.net/Sunk-
cost](http://www.gwern.net/Sunk-cost)) that people tend to over-use the
concept, since it's probably the most know logical fallacy.

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prestigious
Sometimes it can be hard to tell it is a sunk cost that’s the problem

~~~
gbacon
Sunk cost refers to whatever resources have already been spent. Where it
becomes a fallacy is thinking along the lines of _But I’ve already invested
this much money_ or _You know, I’ve been working on it for all these years, so
I CAN’T quit now_.

What we’ve paid into it is gone — a sunk cost — and what matters is how much
_additional_ investment from where we stand now will be required to complete
the goal and whether _that_ cost will be worth it when considered against
other opportunities for the same time, money, and attention.

In some sense, we start at even every day.

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mcguire
I'm always wondering if this is actually a fallacy.

You buy theater tickets. I say, "give them to me." If you don't, is it because
you want to see the play, or the sunk cost fallacy? Does the fact that it is
icy out and dangerous make a difference?

~~~
daveFNbuck
The key to the theater tickets example is that you should treat tickets you've
bought the same as if you got them for free. Replay the scenario but instead
of buying the tickets everyone at my office got free movie vouchers. If I'd
give you the free voucher but not the ticket I bought, that's indicative of
the sunk cost fallacy.

Better examples usually make the alternative better than the thing you already
paid for. Giving you my tickets isn't much of a benefit to me, but icy roads
can make a difference. If conditions are too dangerous to drive to a free
movie showing, I shouldn't drive to use the tickets I already paid for either.

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megaremote
It isn't the same to keep walking to the shop that you know is closed and will
got no benefit out of it, than to keep spending on high speed rail or an IT
project where you will end up with a benefit.

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krob
My personal experience is that you can only determine whether or not project
should be continually pursued is in hindsight. Knowing ahead of time, this
decision is mostly based on dogged persistence and sometimes a little
insanity.

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badrabbit
The F35 jet plane. Enough said.

~~~
danieltillett
Only if you miss what the purpose of the F35 is. If you are silly enough to
think that it is about creating an aircraft then it looks monumentally stupid.
If you see it for what it really is (a massive heist of the tax payers) then
it is a work of genius.

~~~
badrabbit
Even then,it's not like it's some massive conspiracy. There are lawmakers and
pentagon officials that would habe stopped it were it not for sunken cost
fallacy.

Unless of course you actually believe every single person in washington has
sold out his country for money.

~~~
danieltillett
A lot of people have tried to stop the F35 project so far without any success.
Just because a program is continuing does not mean it has not faced
opposition.

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maxxxxx
there is a pretty fine line between persistence and falling into this trap. In
hindsight it's clear but while you are in the situation it's hard to tell if
you should call it quits or not.

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KaoruAoiShiho
Does google have the opposite of a sunk cost fallacy?

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viburnum
Where was the trick?

~~~
electrichead
At the end of the article

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UncleEntity
Thanks, Beeb, now I'm depressed -- turns out my whole reason for existence is
based on a fallacy...

~~~
dirkgently
But it wasn't _your_ fallacy.

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he0001
Not sure that there’s such thing. I mean if you’re not persistent enough you
won’t know if there’s a value to it. And if you are persistent enough you
won’t know what the alternative would have been and if that would have been
better than you are right now.

