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.
In detail
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
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.
In detail
Pairings
Heavy past investments needn't weigh you down today
Working on a big project that's dragging on for too long or become inefficient?
How can you request time / resource for a small project that could be used to test a project hypothesis quickly more simply?
A small sprint involving a multi-disciplinary team and a necessary opportunity for everyone to let go of their sunk costs together.
Loosen attachments to the old with slowly-increasing familiarity to the new
We're predisposed to over-value our current efforts and feel uncomfortable about that which we're not familiar with, even if it might be a better route forward.
How can you expose those exhibiting sunk costs to new ideas by gently increasing exposure and familiarity to them over time?
Eventually, the better idea won't be so unfamiliar any more...
Package your pains, don't prolong them
Packaging multiple pieces of bad news feels less uncomfortable than drip-feeding it out over time and creating uncertainty.
Where can you combine difficult decisions into one major announcement?
Overcome bad past investments with a clean, reflective slate
A fresh week, month or year offers a convenient opportunity for perspective-taking and a more rational assessment of work done to date. Letting go is hard, but iterative time segments with built-in pre-commitments around milestones can offer everyone a clean break from the past.
Behavioural Insights Team did this, setting a self-destruct button on the whole project if they weren't able to achieve a measurable outcome by a certain time.
Where in your projects can you create a future line in the sand upon which you can all decide to continue or not?
Reframe bad past investments as a stage to loosen attachment to them
We'll be more willing to let go of our past efforts when the scenario is reframed to make us feel better.
How can you reframe peoples' past efforts not as wasted but as a necessary part of the creative process?
Going further, what work or learning can be salvaged from the efforts?
As former Apple Designer Jonny Ive once said, the learning from the process can be more valuable than the output itself.
Reframe past losses as part of a bigger future gain
We're disproportionately averse to losing our efforts. Offering a perspective of higher level goals or mission can help reduce our attachment to wasted effort along the way.
Where can you remind people of their ultimate dreams?
How can you package the loss as part of a necessary sacrifice towards a bigger gain?
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Sunk Cost Bias
