Sunk cost fallacy prevents us to make rational decisions

sunk cost fallacy

The Blog Post was originally posted in Jakamo Official Blog on 15 March 2015.

Swiss writer Rolf Dobelli explains 99 most common thinking errors in his book The Art of Thinking Clearly. I guess that most of the companies offering radically new types of products and services are facing one of these, Sunk Cost Fallacy. Basically it means: “We have already invested so much money in this project that we would lose all the money if we would stop now. Therefore, we can not start with anything new.”

I would like to ask: Really? Not even if the new thing would fit better your needs? Increase the productivity? Make things easier to manage?

This type of past-oriented thinking leads automatically to irrational decision-making and it is slowing down the distribution of new beneficial things. Decision-making should rather be based on the future’s potential and estimated future’s benefits, such as productivity improvement or innovation capability increase, that can be achieved, not the money already sunk. Future development matters, money spent in the past does not.

I want to encourage you to start thinking in a new way. What if, when evaluating something new next time, you would try to think rationally the future’s potential instead of sunk cost? Try it. You will be surprised.