The Sunk-Cost Fallacy
Accept the reality of changing our minds.
Elon Musk recently tweeted an image listing 50 cognitive biases we all face. And I was not alone in sensing the opportunity for 50 future blog posts. Here goes the first one; it’s on the sunk-cost fallacy.
I happened to be reading Psychology of Money again, and one of my favorite parts is about sunk costs. Morgan says “We should also come to accept the reality of changing our minds.”
The text book definition for the sunk-cost fallacy is: “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.”
A vivid example from the book is those of us who stay loyal to a career because it’s in a field we chose at 18 when deciding on a college major.
“… the odds of picking a job when you’re not old enough to drink that you will still enjoy when you’re old enough to qualify for Social Security are low.”