Sunk Cost Bias

We’re unable to let go of our past bad investments, even if it makes sense to do so

When we’ve spent lots of time or money on a project that we now realise is failing, we find it hard to draw the line and cut our losses.

Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational behavior and human decision processes, 35(1), 124-140.

The study

Setup

108 people were told they were the head of an airline that was either 90% complete on a $10m plane project, or shown an equivalent $1m proposal to research and develop this plane. In both cases, a competitor had created a similar plane of superior quality.

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Results

In either case, should they still invest the $1m? Those in the 90% sunk cost condition were far more likely to keep on spending than those who had yet to invest anything.

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Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational behavior and human decision processes, 35(1), 124-140.

Key Takeaways

Remind consumers of past personal efforts or the amount of time spent with the brand to increase feelings of a sunk cost. Reframing past efforts as incomplete or as ongoing progress will also induce the effect and assist sales. 

Test your product ideas sooner using a more agile product methodology. This will minimize time, cost and effort wasted on unproven potential failures to which you will become increasingly attached, especially if you’re personally accountable for their success.

Take 15 mins for mindfulness practice - focusing on the present moment and less on the past and future - to increase your resistance to the Sunk Cost bias. (Hafenbrack et al., 2013). Check out the Headspace app. 

Sunk Cost Bias

We’re unable to let go of our past bad investments, even if it makes sense to do so

When we’ve spent lots of time or money on a project that we now realise is failing, we find it hard to draw the line and cut our losses.

Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational behavior and human decision processes, 35(1), 124-140.

The study

Setup

108 people were told they were the head of an airline that was either 90% complete on a $10m plane project, or shown an equivalent $1m proposal to research and develop this plane. In both cases, a competitor had created a similar plane of superior quality.

Results

In either case, should they still invest the $1m? Those in the 90% sunk cost condition were far more likely to keep on spending than those who had yet to invest anything.

Key Takeaways

Remind consumers of past personal efforts or the amount of time spent with the brand to increase feelings of a sunk cost. Reframing past efforts as incomplete or as ongoing progress will also induce the effect and assist sales. 

Test your product ideas sooner using a more agile product methodology. This will minimize time, cost and effort wasted on unproven potential failures to which you will become increasingly attached, especially if you’re personally accountable for their success.

Take 15 mins for mindfulness practice - focusing on the present moment and less on the past and future - to increase your resistance to the Sunk Cost bias. (Hafenbrack et al., 2013). Check out the Headspace app. 

Sunk Cost Bias

We’re unable to let go of our past bad investments, even if it makes sense to do so

When we’ve spent lots of time or money on a project that we now realise is failing, we find it hard to draw the line and cut our losses.

The study

Setup

108 people were told they were the head of an airline that was either 90% complete on a $10m plane project, or shown an equivalent $1m proposal to research and develop this plane. In both cases, a competitor had created a similar plane of superior quality.

Results

In either case, should they still invest the $1m? Those in the 90% sunk cost condition were far more likely to keep on spending than those who had yet to invest anything.

np_read_2490885_000000

In detail

Connected to

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Sunk Cost Bias

is included in Box One of our physical workshop tool.
is included in Box Two of our physical workshop tool.
Box One