The Sunk Cost Bias 

and 4 Ways to Overcome It

[I'm updating this post from several years ago because it is so relevant.  I see this problem often in my work with clients and in teaching: people find it difficult to let go of an item (or idea or belief or hobby or activity....etc...) because of the cost incurred in obtaining it. "Sunk Cost" is a term economists use for something spent that cannot be recovered.]

Read on if you have trouble clearing out stuff in your life that brings no value.

 Becca

(Re-posted from litemind and published by Luciano Passuello)

The sunk cost bias is a thinking trap that not only slows down personal improvement efforts, but one which can make people literally waste their whole lives on — something I’ve seen happening with disturbing regularity. The good news is that, like most thinking traps, the biggest step you can take to overcome it is by simply becoming aware of it. 


Suppose you pre-ordered a non-refundable ticket to a basketball game. However, on the night of the game, you simply don’t feel like going anymore: you’re tired, there’s a blizzard raging outside, and the game will be televised. You regret the fact that you bought the ticket because, frankly, you would prefer to stay at home, light up your fireplace and comfortably watch the game on TV. 

But the fact is that you did buy the ticket — and it was quite expensive and hard to get. What would you do?

The Sunk Cost Bias Exposed

Sunk costs are costs that are irrecoverable. It’s something that you already spent and that you won’t get back, regardless of future outcomes. It’s like that gym club membership you bought: whether you get its benefits or not, the money is gone and there’s no way to get it back.
In the basketball game ticket example, the point is that the money is already gone, so now you are better off doing what pleases you best. So, unless you can sell the ticket, just forget about what you paid for it. You are better off using it to help fuel the fireplace while you comfortably enjoy the game on TV.

This is, of course, easier said than done. There are many psychological blocks in the way of simply discarding an expensive ticket. And if that holds true for a mere basketball game ticket, imagine how strong that effect is when it comes to, say, abandoning a long-time relationship that you invested so much time on, but that just isn’t working anymore.

That’s the sunk cost bias. It’s what you may have heard as “throwing good money after bad”, but it isn’t just about money: any type of investment you make — time, money, effort, anything — is subject to this thinking trap.

Are You a Victim of the Sunk Cost Bias?

Persisting with bad decisions due to our irrational attachment to costs that we cannot recover has become so common that you can find them just about anywhere. Big organizations and governments excel at it. (A government that insists on a war so the lives already spent “are not wasted” comes to mind, but I digress…)

The fact is that this mental trap permeates our decision making and affects not only organizations, but it deeply affects us at a personal level, too. Check out some examples:

• Bad overall life decisions: What would you say about persisting on an unfulfilling job or career, just because you ‘invested so much time in it’? Or persisting on a bad relationship, just to ‘make all those years worth it’? These are the saddest cases of the sunk cost effect that I know, since people can literally waste years — if not their whole lives — because of it.
• Bad financial decisions: Do you know anyone who refused to sell something for a perfectly reasonable price, just because they spent so much money in it (maybe property or stocks)? What about casino gamblers that simply won’t quit, claiming they need to make the money that they already lost “worth it”?
• Bad Everyday Decisions: You ordered too much food, but you eat it anyway despite being full. You keep useless clutter in your home, if only because you paid for it. You watch a bad movie up to the end, only because you started watching it. The examples just go on and on. The consequences for each of them may seem trivial at first, but if you think about it, we make these mistakes so often that they add up pretty quickly.

Why Do We Fall Into the Trap and How to Avoid It

So, if dwelling on sunk costs is a bad idea, why do we do it? More importantly, how do we overcome this thinking trap? Here are 4 main reasons why we do it, along with ways to overcome each of them.

1. We Want to Make the Investment Worth Our While

This is the fundamental reasoning behind how we deal with sunk costs. We have a genuine interest in making our efforts worth our while. We don’t want to feel that we spent anything in vain — time, money, anything. However, even if we know deep inside that our approach is wrong, we still have trouble abandoning it.

Solution

Sure, we all expect to have a good return on what we invest. It would be insane not to. Just make sure you’re not on a situation solely because you made the investment in the first place. You don’t make a bad move any better by dwelling more on it, unless you can effectively make something that changes the expected outcome.

Stop spending resources on a bad move — throwing good money after bad — immediately and start spending these resources on a new one: Cut your losses and move on!

2. We Fear Failing and Looking Foolish

We live in a success-oriented culture. Cutting losses means admitting you made a mistake, if not in public, at least to yourself. Our egos will always stubbornly try to hold us to our commitments, so we don’t need to admit our imperfections. If you made a public commitment, you’re even less likely to break it, as there will probably be a lot of explaining to do.

Solution

Allow yourself to make mistakes. Quickly admitting your mistakes is much more productive than entrenching yourself in a situation just to “save face”. Be aware that quitting is not failing (actually, sometimes it’s exactly the opposite). 

Better yet, do like Socrates and think differently: become proud of admitting your errors. Change your attitude from hiding mistakes to actively exposing them. Look for them: the more, the merrier. You’ll surely feel defenseless and uneasy at first, but once you get used to it, you’ll feel invulnerable to harsh criticism. 

Moreover, instead of focusing on the sunk costs, take pride in having recognized the costs associated with sticking to the old approach.

3. We Become Attached to Our Commitments

After we decide to do something, we feel attached to what we committed to. And the bigger the commitment, the harder it is to let go. Not only that, but it’s a human trait to be overconfident that everything we set ourselves to do will pay off. We’re biased when we evaluate the probability of success of already-made commitments. (This is known as overly optimistic probability bias.)

Solution

Be aware of the natural bias to stay on your current course of action. While considering other options, evaluate the status quo as it was just another option, rather than the front-runner.
Also, try to detach yourself emotionally from your past decisions. Be especially careful with things that worked at some point in the past as this is not a guarantee that they’ll work in your favor again.

I like to practice what I call “zero-based thinking”. Forget about the past and consider this very moment as your “point-zero” in time: act like all you have is the present. I often do this by pretending that I just woke up with some sort of amnesia. I imagine myself in my current situation, but without any knowledge of how I got there. This way, it’s much easier to focus on my current situation, instead of clinging to past decisions that would drag me down.

4. We Lose Sight of Our Underlying Goals

Sometimes we become so preoccupied by how much time and effort we put into something that we lose sight of its relevance in the greater scheme of things. We become attached to the means and forget about the ends.

Solution

Always be mindful of long-term objectives. Don’t confuse any greater goal you want to achieve with the specific means of implementation you’re attached to. Don’t get caught up in justifying your current actions. 

Moving away from the basketball game example, suppose your original goal was to have fun, so you rented a movie. If the movie turns out to be a bad one, don’t forget that your goal was not to spend two hours watching a movie, but to have fun. So, turn it off and go have fun, somehow.

Let Go of the Past, Move On

I’m not recommending that you become a quitter by any means. The point is to be always aware of your current situation. If you decide to stick with your current approach, that’s great. Do it consciously and for the right reasons. 

And remember that the greatest example of sunk cost you pay is with your own time, and which you will not be able to recover: all that you lived up until now is gone — you just can’t reclaim that time. Stop clinging to the past and make the most of your life right now.

Gorgeous Garage

GARAGE GREATNESS

Wouldn't you love to have a beautiful, organized, clutter-free, envy-of -the-neighbors garage?   Maybe even park a car or two in there??  The Department of Transportation says that less than 50% of Americans park the number of vehicles in their garage as it was built to house. The last thing you see when you leave and the first view of your home when you return is the garage, and that impacts how you feel all day.

Whether your budget is low, middle, or yippee, here's the path to your great garage, carport, or storage building using my Top Ten Time-tested Tips.

1.  First step always is to pull out the stuff (do small areas at a time to avoid overwhelm) and review its usefulness.  Edit ruthlessly!  Recycle, donate, sell, share with the neighbors, or trash it – the key is to put it back into the Universe.  Now you have less stuff and more space to work with.

2.  Plan your garage system in zones - keep all the tools/equipment for a particular activity together in one area.  Sports, toys, gardening, wood-working, car maintenance, holiday, etc. 

3.   Keep in mind that your goal is quick and easy access to the items you use most in any particular season.   Make things easy to find and simple to put away.  This takes some thought and planning before you begin and an honest appraisal of how much you really use things

4.  Always go up - use all the space allowed with high shelves for less used items (holiday decor, off season sporting goods).  Get as close to the ceiling as possible to maximize the space and get stuff off the floor. A cleared floor is safer, cleaner, and just looks more appealing.  If your room height and budget permit there are great options to actually hang items from the ceiling.

5.  Use a system of wall mounted hooks and clamps for as many of your larger tools and sports items as possible.  Several companies offer these at varying price points, or build your own if you’re handy.  Again - use the walls for easy access and to get it off the ground.

6.  Include both open and closed storage if budget permits.  Closed cabinets are great for messy looking items and security.  Keep sharp tools, toxic chemicals and paints away from kids and pets.  

7.  Open shelves can be inexpensive if you shop the big box stores.  I often use a heavy-duty 5-shelf plastic unit for lower-cost projects.  They can hold a lot and no worries about possible water or other environmental damage.  Get the tallest one available to hold your stuff and leave some empty space for growth.

8.  Shallow drawers (best is a large tool chest) are great if you have a lot of hand tools.  Interior storage keeps them clean, safe, and organized by function for quick access.  A pegboard with hooks and small bins for constantly used small tools is terrific for the serious DIY-er.

9.  Use a large basket (hanging or free standing) or tub for balls.  They must be corralled so you won't be constantly chasing them around!

10.  Keep in mind the age and size of family members as you plan storage that is easy to reach for even the smallest ones.  Increases the chances that stuff might be put away after use!

Senior Moves

The Best Move

The Arkansas Democrat-Gazette state-wide newspaper recently asked me to be "The Expert" for their monthly column, and it was published yesterday.  My new business Your Best Move is based upon the knowledge gained over many years of helping people make big transitions.  Here is some advice I shared in that column.

Moving is never easy.  When the person moving is a senior and the transition is to a much smaller home, the logistical and emotional issues and complications can be exponentially higher.   Some tips to help smooth the process:

 

     1.  Keep physical needs uppermost in mind – both for a successful downsizing process and for safety and comfort in her new home.  Respect for their thoughts and decisions and a huge dose of patience will be helpful too. 

     2.  Use the expertise of the complex that will be their new home.  They work with new residents and families every day and have a lot of good advice to offer. 

  

     3. Start as early as possible in the sorting and downsizing.  Include all appropriate family members in the decision making and request their help.  Understand that unfortunately you cannot count on every family member being a positive influence in the moving process.

       4.  Get a floor plan of the new space and determine what of their current furniture will fit.  Begin with the largest pieces – bed, dresser, sofa, chairs, etc.   Once those are selected choose the necessary lamps and other accessories to fill the space.   Bright lighting is essential for comfort and safety, and be very careful not to over-stuff the apartment.   Avoid adding anything that might impede them maneuvering about the space.

          5. Measure the clothes hanging space and compare the length to what he/she has hanging now - then make plans to either store any excess offsite or to give it away.   Many senior living spaces have much less storage than family homes, so take only what you know will fit comfortably and leave some room to grow in the future.

           6. The really difficult part is often parting with a lifetime of treasures.  Plan for this to take some time as it is physically, mentally and emotionally taxing to sort through the items and help them make good decisions about their dispersal.  Ask more questions – make fewer assumptions and demands.

            7.  Typically seniors have an easier time when sharing their items with family.  If this is not possible, discuss potential charities that might resonate with them – supporting these groups can make the senior feel much better about losing their things.  If family members will be picking up items, set a firm date when they must complete the process.   This is very often an issue.

      8.   Distribution of other items – do your research in the local area to find the best solution for your family.   Options include yard sales, tag sales, auctions, selling online (ebay, Craig’s List), or simply donating, recycling, or trashing.  As in everything, convenience comes at a cost.

         9.  Take lots of pictures of anything that is going away.   It’s quick and easy with a phone or digital camera.  This can be valuable for insurance, legal, and potential family concerns.  Most importantly they can still have the photos to reminisce and to share with younger family members.

        10.  If possible have the senior stay with a friend or elsewhere on the day of the move.  It is often upsetting to actually see items that will no longer be part of her life being left behind.  Set up the new home completely including hanging pictures, making the bed, installing a TV, putting away clothes, adding accessories that they loved before, and anything else to make it feel like home from the very beginning when they arrive. 

     Pets should spend the day elsewhere during the actual move.  There will be lots of strangers and busy feet moving around.  Add to that open doors and general chaos,  and it becomes upsetting and possibly dangerous for fur babies.

     11.  If you have limited time or there are physical or geographical issues consider hiring a senior move manager for all or part of the move.  These experts have training, experience, and a network of resources to ensure a smooth transition.  An objective outside opinion can be extremely valuable when dealing with all the complexities of emotions, memories, physical needs, intrinsically valuable items, and multiple family members.