I just read a great article about thinking mistakes and how they mess up our decision-making. This article covers eight mistakes, any of which could be the basis for an article by itself. It also includes some terrific cartoons illustrating confirmation bias.
Right now I want to focus on mistake #3, the sunk cost fallacy. This is the natural human tendency to focus on what we have over what we could gain. We especially focus on the costs of whatever it is we have. I have a suit in my closet that I bought several years ago at great expense. I had been looking for a long time for such a suit. I had it altered so it fit perfectly. Well, that was then, and it no longer fits. It’s out of style. If someone offered to give me a similar suit, I wouldn’t take it. Why should I take a suit that doesn’t fit? So why do I have this suit still hanging in my closet? It’s because of that focus on the “sunk cost,” all the time and money I put into the thing. That money is gone and I can’t get it back, whether I wear it, keep it in my closet, or get rid of it. It’s gone. Get over it.
Many experiments have shown how strong this irrational bias is. In one cited in the article, people chose a less desirable option simply because they had sunk more money into it. Daniel Kahneman, quoted in the article, attributes this to the self-preservation instinct that kept our ancient ancestors alive.
But we’ve moved beyond that. To make the best decision, ignore the sunk costs. Maybe you put a lot of effort into the relationship, but it’s not working. Maybe the item was expensive, but you don’t need it anymore. Maybe it took you a long time to get here, but it’s not where you want to be. Yes, it’s hard, but all that is gone. Get over it. Here’s the big question. What’s the best option looking forward from where I am right now?
Yes, that suit goes.