That Sinking FeelingWhen to cut your losses.

That Sinking FeelingWhen to cut your losses.

Issue 52

, Starters

  • Words Hettie O'Brien
  • Photo Maciek Miloch
  • Set Design Zuza Slominska

You can think of a “sunk cost” as you might a doomed relationship. Even as you begin to cringe at your partner’s jokes and flinch at their affections, you will likely, at first, try to convince yourself that this isn’t a problem. You have grown so close. You know everything about one another. Surely the time and effort you have invested will mean it will eventually work out. After all, they are dependable and kind, and it would be a waste to start over. 

Of course, thinking logically, it’s impossible to waste time that has already been spent, and if you were a cold-hearted economist, you might have dumped your partner as soon as you had doubts, regardless of the sunk cost. Instead, you’ll probably wait months before finally deciding what to do. 

The idea of a sunk cost emerged as a convenient way for economists to make sense of a perplexing and eternal condition. If everyone is motivated by self-interest, why do they persist in doing something that is unrewarding or that has little chance of success? It might be a relationship that has already run its course, but it could just as well be a sandwich that tastes disgusting, but which you continue to eat, or a coat that you bought and insist on wearing despite knowing that it doesn’t fit, simply because you have already paid for it.1           

Economic theories presume that people are guided by the prospect of future gains or losses. They have little place for face-saving, stubbornness or blind hope, which is part of the reason that the Nobel Prize–winning economist Richard Thaler first coined the idea of a sunk cost. To illustrate his theory, Thaler gave the example of someone buying a ticket for a basketball game and driving miles through a snowstorm to watch it, simply because they’d already paid for it. But perhaps this misses the point. Maybe the basketball fan was excited, and the snowy drive only added to the experience. Perhaps they didn’t like the alternative: an evening spent at home, another plan to be formulated, a sense of missing out. Not everyone weighs decisions as though they are calculations on a balance sheet, as the idea of a sunk cost implies.


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