Get out of the theatre – Sunk cost fallacy

The film was dire. After an hour, Trevor whispered his friend: ‘Come on, let’s get out.’ He replied: ‘No way. We’re not throwing away $30.’

But that’s no reason to stay. $30 has been spent regardless of whether we stay or leave, so this factor should not play a role in the decision. This is the sunk cost fallacy at work.

There are two possible outcomes here.

One: You pay $30 and you stay to watch the rest of the movie. In this case you lose $30 and you lose 2 hours of your time. Two hours, down the drain.

Two: You pay $30 and you leave the theatre. In this case you lose $30 but you get to keep the 2 hours. You can do something else with it. Maybe, you can find a new friend.

Let it go

The sunk cost fallacy is most dangerous when we have invested a lot of time, money, energy or love in something. This investment becomes a reason to carry on even if we are dealing with a lost cause.

The more we invest, the greater the sunk costs are, and the greater the urge to continue becomes. It leads to costly, even disastrous errors of judgement.

Of course, there may be good reasons to continue investing in something to finalize it. But beware of doing so for the wrong reasons.

Rational decision-making requires you to forget about the costs wasted to date. No matter how much you have already invested, only your assessment of the future costs and benefits counts.

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