How much do you know about sunk costs?
Perhaps you’ve heard of the sunk cost fallacy. That’s the false belief that you must salvage any remaining value from a decision gone bad. The illusion that there’s even anything to be salvaged in that situation.
The sunk cost fallacy leads us to hang on to items we have no purpose for. It causes us to maintain subscriptions we’ve never made use of. And it compounds poor decision making with more poor decisions.
The conventional wisdom is to ignore sunk costs. To throw out the baggage weighing us down and not think about the price tag.
But as with most concepts, this advice is far more straightforward on paper than in reality.
One reason for this is emotion. It’s difficult to make a logic-based decision when you let your feelings get in the way.
Decisions that didn’t go as planned carry an emotional toll. It’s hard to throw away the sensations that went through our hearts and minds when making our initial decision. And it’s especially difficult when money is involved in those decisions.
Our finances are tied to our feelings of security. Casting away something we spent our hard-earned money on is a bitter pill to swallow.
So, our emotions can lead us to hang on. Even when we know we shouldn’t.
Another reason why we hang on to sunk costs is to avoid the implication that we erred beyond reproach. That we failed, wholly and completely.
You see, we don’t like failure. It eats at us. It terrifies us.
This is why we’re so attuned to silver linings. It’s why we believe in moral victories.
We feel that if we can take away something from a bad experience to help us down the line, then perhaps the blunders will be worth it.
Of course, casting off sunk costs flies in the face of this theory. There’s nothing to take away. Just an opportunity to cut the dead weight and head on down the trail.
The idea echoes an entrepreneurial tagline: Fail fast and move forward.
But this might not be the right approach.
I certainly understand the benefits of starting anew. I recognize the power of progressing unencumbered by the ghosts of poor decisions past.
Yet, without a process in place to learn from our mistakes, we only assure that we will repeat them.
We will stay sloppy. We will remain wasteful. And we will build a culture that casts accountability aside.
This is not the type of world we want to live in. This is not the future we want to build.
But where do we draw the line? How do we reconcile between ignoring sunk costs and keeping ourselves from iterating and improving?
Some critical judgement is needed.
We must recognize that not all sunk cost situations are the same.
Some are predominantly the result of chance, of known risk. The forces that lay your resources to waste are beyond your control.
If you invest in a grill and deck chairs, and it rains all summer long, the cruel side of chance is to blame. Same deal if you buy a warm jacket and ski boots for your vacation in Colorado, only to encounter record high temperatures all week.
There is nothing to be learned from these misfortunes. Nothing that you could or should have done differently.
Risk is omnipresent and unpredictable. We can’t plan around it, nor should we try to.
Best to cast off the sunk costs and move forward.
On the other hand, many sunk cost situations are actually efficiency opportunities in disguise. They’re decisions you can’t have back, but might rethink the next time around.
Those season tickets you bought but didn’t use? That’s one of them.
You can’t get your money back, but you sure as heck can avoid repeating that decision next year. Cast off the sunk cost with discretion.
Same goes for any golden handcuffs situation you might find yourself in. Leaving those perks behind might be gut-wrenching. But knowing what to look for next time around can spare you the ignominy of dealing with the same situation later.
The key, then, is recognition. It’s taking a close look at those sunk costs and determining which ones are purely a matter of chance, and which ones provide an opportunity for growth.
It’s understanding the difference between letting go and learning. It’s coming to terms with the duality of purpose.
Getting to know this distinction is a worthwhile mission. One that allows tomorrow to be better than today.
So, don’t despair at sunk costs. There may be sunken opportunities within them.