As I write this, I'm currently about 40 minutes into waiting for a train at the station. The overhead voice pops up every now and again, to say that trains have been delayed and that they're "sorry for any inconvenience." It makes you wonder how long they will say that a train is delayed, and when they'll just say it's cancelled instead. It's also giving me plenty of time to think about the phenomenon called "sunk-cost fallacy".
Definition and Explanation
Sunk-cost fallacy: the phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it, even when it is clear that abandonment would be more beneficial.
"the sunk-cost fallacy creeps into a lot of major financial decisions"
— Oxford Languages
As a real world example: the longer I'm stood here, the less likely I am to leave because I've invested so much time in waiting for this train. I 'just know' that a train will appear the moment after I leave. So I'm waiting.
Based on how many people are around me, this would seem to be a common response to events.
Cognitive Biases
The reason it is considered a ‘fallacy’ is because it involves decision making in an irrational manner. I can’t get back the time I’ve used waiting at the station already, no matter what I do - so from an economic view-point, there’s no point including it as a factor in future decision making.
This type on thinking can be considered as a form of loss aversion - which is a form of cognitive bias that in behavioural economic terms means the pain of loss is felt more severely than an equivalent gain. (For example, losing $10 would feel worse then finding $10.)
The fun part of all this though is that even when you’re aware of the irrationality of it all, most people will still continue to wait for the train.
Recognizing Sunk-Cost Fallacy
Of course, it’s not always time that can be lost due to this fallacy - these costs can be financial, emotional, reputational, and so on. Knowing how to spot them can be difficult. Keep an eye out for:
- rationalizing or justifying your choice to continue
- emotions such as guilt, fear, or pride that may be influencing your judgment or preventing you from considering alternatives
Consequences of Sunk-Cost Fallacy
Depending on the situation, the consequences can range from ‘trivial’ to ‘catastrophic’. Forty minutes of time wasted can be either, depending on your circumstances. Other forms of sunk-costs such as financial or emotional stress however, may have a greater negative impact.
It’s not just individuals that succumb to sunk cost fallacy on occasion, it can happen at the corporate level too. This was most famously shown during the Concorde project, where the British and French governments did not realise that by taking the cost of the project so far into account and including it in their rationale to continue, they were perpetuating loss aversion. This ended up costing them £1.5–2.1 billion in 1976, which would equal an estimated £10.5–15.7 billion in 2022.
Overcoming Sunk-Cost Fallacy
So how do you decide whether it’s best to keep waiting for the train, or whether it’s time to leave?
One way is to consider the opportunity cost for the end goal, and how achievable it is now. For example a 40 minute delay would be annoying if you were heading into work for the day, but catastrophic if you were trying to meet up with someone on their 30 minute lunch break.
Another way is to develop exit strategies. In this case, before heading out to the train station consider in advance how long you’re willing to wait at the station in general. Planning in advance how and when to cut losses can make it easier to do so when the situation arises.
However you decide to make your decision, you can do so comfortable in the knowledge that by overcoming sunk-cost fallacy, you are enabling yourself to make better, more resilient, and more adaptable and rational decisions.
If you’re stuck waiting for your own train (literally or metaphorically) and have any suggestions for alternative ways to combat this fallacy, share them in the comments below.