The Sunk Cost Fallacy at Work

by sysop in On the Job 101

by Daniel Klaeren

Imagine you are going to the movies. You pay ten dollars for your ticket and sit down to enjoy the movie. To your disappointment, you are utterly bored by the first hour of the film but decide to stick it out until the end because you already paid for the ticket. Does this experience sound familiar? If so, you may have committed to what is known in economics as the sunk cost fallacy – letting your past investment in a decision taint your judgment about its future value. 200495559-001

A recent article in the Ivey Business Journal describes this sunk cost trap and how we are psychologically inclined to make this mistake. One theory is that our natural aversion to waste leads us to try and rationalize even very poor investment decisions by investing more resources in  the slim hope that something good could still come out of it. We don’t want to waste that movie ticket so we waste two hours watching a movie we hate.

How does this trap rear its head in the work place? One of the ways you can improve your efficiency at work is to check that you are not committing the sunk cost fallacy in how you invest your time. When deciding whether or not you should go forward on a project or task, ask yourself this question: what future value does this project bring and what future costs will it require? If you find yourself thinking that you just have to keep going with an unproductive task because you’ve already put a lot of time into it, then you are no longer thinking objectively about the value that task can create. Persistence is generally a great quality, but not when you are persistent about a high-cost, low-value project. Clearly if the boss thinks the project is of value, then you will want to stay the course. But other times, the best decision may be to cut your losses and invest in a project with high prospective value.