Sunk Cost Fallacy

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/wiki/Sunk Cost Fallacywork

When somebody's sacrificed or invested a great deal in a cause or project, they tend to become irrationally dedicated to it. This applies even when the costs invested can't be recovered. More of a cognitive bias than anything.

If I spend fifteen dollars on this contest, I can win the prize. I can buy the prize elsewhere for five dollars. I have already spent eight dollars on the contest. Since I don't want the money to be wasted, I will continue.

Also called:

• Foot in the door (in sales)
• Camel's nose (in social psychology)
• Throwing good money after bad (in business)
• Pot committed (in Poker, sometimes)
• Pay-or-play (in sports and entertainment)
• Pouring sand down a rat hole (usually in politics)

Compare Know When to Fold'Em.

Examples of Sunk Cost Fallacy include:

• In psychology this is generally related to cognitive dissonance theory, which is basically the idea that when people think of themselves one way, but act in another way they will try to rationalize it. Specifically people think they make good decisions, but when the decisions aren't paying off, they throw more effort after it to make the decisions good rather than admit they made a bad decision.
• It's also known on social psychology as a great way to bring someone into a group. Cults are known for using this: How about you read a flyer? Sure, that cost nothing. Hey, why don't you answer this quiz on how happy you are with your life? Well... You've already read the flyer, that's not much more effort. How about going to a session?
• More serious (and much more complicated) in life or death matters. Dead troops are a sunk cost, but many nations across history have continued on losing military campaigns because their leadership could not face up to having wasted troops.
• This is often the reason people will spend lots of time on internet arguments, even after they're losing. Or as Scott Adams put it, "Nothing makes [someone] argue harder than being proven wrong."
  • Or even after it's obvious they are discussing with irrational fools that insult them rather than argue with them.
    • One of the games Internet trolls like to play is see how long they can string along their poor, furiously typing target(s).
• This is one of the main reasons why people continue to play MMOs even when they aren't enjoying them. It's arguable that MMO designers deliberately use this fallacy to encourage people to continue playing the game.
  • They're more likely to use a kind of Skinner Box and string along small rewards.
  • "Free-to-play" MMORPG games. After sinking substantial money into the game (to get powerups that nonpayers wouldn't have), the player feels compelled to continue, even when the grind is getting difficult. This is especially true of games that experience (or worse, levels) are lost for death. You pay up, or one lag-related death takes an enormous amount of experience. Despite getting to the point where even 0.10% experience takes hours while death loss takes only seconds, the player continues to play. It's actually worse in some ways than for subscription-based, since supposedly "nobody forced you to pay" (although the game itself may be balance-weighted toward payment, by making items scarce and leveling slow), making you feel personally committed rather than having paid what was effectively a usage cost.
• One use of the poker term "pot committed" is when a player continues to call with poor cards simply because they've already sunk a lot of money into the pot, even when there's no chance that they'll win.
  • By the way, even poker experts disagree on whether "pot committed" is really a thing, or how situational it is (e.g., does it matter how much everybody else has bet?). Be ready for debate if you just go around the poker community calling it a fallacy.
• The dollar auction is a related, but more "rational" trap. An emcee decides to auction off a dollar with a starting bid of one cent (which may be adjusted for inflation) - but there's a catch. The high bidder gets the dollar, but the second-highest bidder still has to pay their bid and gets nothing. The bidding will start off with each of the bidders standing to profit, but once the high bid reaches 99 cents, the second bidder has to choose between losing 98 cents or bidding one dollar and making nothing. After this, the first bidder has to choose between losing 99 cents or bidding $1.01 and losing a cent. This process of bidding will continue even though neither side stands to gain from future bids.
  • The key features are: Your outcome depends on where you are relative to the other player. You bear costs whether you win or lose. Action is sequential (You would never start by bidding $1.02 for a dollar, but…). Which is a simple model of real life escalating situations:

An all-pay auction is an artificial situation, but consider a war of attrition: some of your soldiers are killed, etc., whether you win or lose. It really is all-pay. Same for patent races: Suppose you spend $0.9 billion on R&D trying to develop a new medicine worth $1 billion, but your competitor is on track to win by spending $1 billion. Win or lose, you pay the R&D costs. It would actually be better to plow another $0.2 billion in, so you’ll “win” the race by paying $1.1 billion.

• Happens in labour disputes where management or unions try to recoup the losses from a strike or lockout, and that merely pushes the bargaining positions of the parties further apart.
• Within sociology, the combination of this and My Girl Is Not a Slut often leads to girls feeling resigned to becoming sexually promiscuous after having had sex once. After all, they can only lose their virginity once and what does it matter after that?
• The Dutch public transport card system started out as a bad idea, turned out to be a worse idea, became a giant money sink, and still the government refused to just fess up and admit their mistake. A few years later, it's currently^[when?] being debated as the worst thing that ever happened in the history of Dutch transport. Attempts by the government to just buy out the company responsible for the mess are still failing miserably.
• Stephen Colbert, on The Colbert Report, summed it up quite succinctly when discussing the American dilemma of whether torture was justified since it helped to capture and kill a hated terrorist. Stephen's usual Insane Troll Logic is applied to the point where, because America has already lost its beloved moral superiority by using torture, they have to keep torturing until it solves all of our problems, or:

"We must do whatever it takes to justify what we've already done."

• Supporters of The Vietnam War and the U.S. occupation of Iraq said that unless the U.S. continued the wars, the lives of soldiers who'd already died there would be wasted.
  • That's actually not this fallacy. The Sunk Cost Fallacy is about continuing onward after success is already impossible because you've already invested. Neither war was impossible of victory at the time their supporters were making these arguments loudly and in fact the U.S. arguably won the latter one; what we then failed to do was properly consolidate the victory afterwards, leaving a power vacuum into which ISIS leapt several years later to re-start a new war.
• An old maxim dating from World War I is "never reinforce failure" gotten from experience of generals who spent too much time, well, reinforcing failure. What that means is that when you make an attack you send uncommitted troops to places where there are reports of a little give, and don't send them where they are stalled. Of course like most of these sayings it requires judgment to know when the time has come to invoke it, as some operations really do take a while.

Looks like this fallacy but is not

• When abandoning the current plan has costs that outweigh the benefit of switching to a better plan; for example, a penalty clause for cancellation of a contract that is higher than simply paying the contracted price until the contract runs out. Cell phones and cable/satellite services, health clubs, and auto leases often have these. (For example, a cell phone contract is 2 years at $20.00 a month, and has a $250.00 cancellation penalty. If 12 months or fewer remain on the contract, it costs more to cancel than it does to simply continue paying the contracted amount until the contract expires.) Another example would be, if in the contest above, the person had spent $11 rather than $8. Assuming victory was certain at $15, continuing to play would be a reasonable decision. Continuing to play costs $4 more, making $15 total. Stopping after spending $11 and simply buying the prize elsewhere for $5 costs $16 total, so why stop? One of the best examples is architecture; often ancient buildings continue the same use long after new and sometimes more efficient fashions come into play because the marginal utility of the new building is not worth the cost of demolition and rebuilding (thus in Berlin after World War II a whole new look came to the city simply because large parts of it had been bombed out anyway).
  • Or if the contest itself is something fun enough to be worth at least $2 in its own right. This is how things like carnival prizes work.
  • Or the contest is for charity, so even if you lose the money you spend is going to a good cause.
  • The above examples simply point out that the Sunk Cost fallacy should account utility, not merely abstract value. Let's return to the carnival game example, where the player had sunk $8 into the game, victory was sure at $15, and the prize was available for purchase for $5 at the store tomorrow. Should the player desire to give one's child/date a memento of the fun day at the carnival, an individual might decide quite rationally that the utility of acquiring the prize that day, at the carnival, for $7 was higher than getting it tomorrow for $5. As long as dollars are replaced with utility, the Sunk Cost fallacy is inescapable. Gain/loss of reputation, happiness at acquiring a good in a particular context, secondary effects (such as the charity example), and so on would all roll up into utility, which would be a better measure if it were not frequently subjective, and even when objective either hard or impossible to quantify.
  • It should be noted that in all these cases the sunk costs are still ignored, the utility of the prize is weighed against the $7 that still must be paid, not against the $8 that has already been sunk, etc.
• The relationship between military situations and this fallacy is rarely clear-cut. If you are close to a valuable objective then continued effort may be justified. If this decision was based on one's own sunk costs, it was at best Right for the Wrong Reasons.
  • This was long argued to be the main reason why Russia lost the Russo-Japanese War. By the end of the war Japan was winning militarily, but its economy was stretched to the breaking point, and their mobilization resources were completely depleted, as they had started drafting kids and geezers into the army, with the predictable outcome for troops quality and morale. Some analysts say that had Russia pushed just for a couple of months more, even in the wake of the horrific losses like Tsushima and Mukden, Japan would've sued for peace. On the other hand the Tsar's government had really lousy intelligence and didn't know that, so they decided to cut their losses and sued first.
    • Of course, this war was deemed logistically impossible by the Chief of Staff before it even started, and would be strategically crippling for Russia even in the impossible best-case scenario, so in a way it's an inversion of going with sunk costs: the monarch in question turned away from his own awful decision in the worst possible moment, which in itself caused more damage.
  • Also, politicians have to consider not only a given war in isolation, but the position of their state afterwards. If they fold too quickly other nations might regard them as easy game, and many would prefer continuing a stalemated war in the hopes of a break. After all, there are historical examples of such breaks happening, and even if there weren't, they have demonstrated they can stick up for themselves.
• When the possible return is so great compared to the possible loss that it is deemed a reasonable risk to take. That's gambling, not fallacious.
  • This works better with non-cumulative risks (like Lotto); otherwise, see pot committed above.
    • The scene in Casablanca where a Bulgarian fugitive is playing roulette for a ticket is an even better example. His life and that of his wife were dependent on success and so it was not primarily money he was thinking of.
• Labyrinths of Echo explored the borders of it a few times. One, there's Arvarokhian notion that dying to bring a victory is glorious, while being killed and lose is a disgrace - which is why the losing side bothers to run just to not lose completely - they "won't bother to hide merely to stay alive".
  • Juffin comes from the people of highland hunters. In a prequel, he explained to Lonli-Lokli their view: it's acceptable to take lives for defending oneself, eating, selling furs, etc, but to kill without a good reason and "throw the corpse in a swamp" is a "crime against live" - and one will pay for it. Of course, Juffin is manipulative and is telling Lonli-Lokli - right after he got his Lawful Stupid personality - that he got an ultimate honor debt to the only creature he ever called a friend... but also:

Juffin: That's also why I cannot let the World fall - killed so many people over this, I don't know such numbers.