Sunk Costs, The Past, and The New Year

by Stephen Mills on January 13, 2013

Several years ago I wrote an article explaining The Sunk Cost Bias Mind Trap.  Since we are starting a fresh new year I thought it would be appropriate to remind everyone to avoid this costly trap.  I recommend you follow my link and read the original article because it is a better article, but I will summarize it here.

This is one of the hardest traps for me personally to avoid and I think for most others as well.  For example I love to read books and watch movies.  For many years if I started a book, I finished it even if I didn’t like it.  The same thing if I plunked down cash to go to a movie.  I never walked out of one.  After all my investment would be “wasted” if I didn’t finish right?  Wrong.  In fact it couldn’t be more wrong.

The central point is the past is the past and any investment that occurred in the past is already sunk, therefore the term “sunk costs”.  If you continue something because you have already invested time or money or some other resource in it, you are simply compounding your original mistake.  If I paid for a book and have read ½ of it and don’t like it, why should I continue to invest my valuable time doing something just because I have already sunk costs into that activity?  Those are gone.  I can’t get them back.  Then only important thing is what do I want to do now?  Where can I most enjoyable or profitably invest my time NOW.

I think my epiphany was Jim Carrey’s movie Lemony Snicket’s A Series of Unfortunate Events.  Since I liked some of Jim Carrey’s movies (something I don’t really understand), I went to this movie.  I hated it so badly I could hardly stand it.  After about 20 minutes I left the theatre because I realized that continuing to punish myself for my original mistake was irrational.  It was the first time I had done that and at the time I was going to multiple movies a week.  While it was obvious with such a bad movie, I realized the same thing applies to virtually anything.  If there is something better to be doing, it doesn’t matter what I’ve done up to this point or what money or time I’ve invested.  It’s all sunk costs.  It’s gone.  It’s what I do from this point forward that’s important.

So as you look forward in 2013 and beyond I encourage you to drop all of your attachments to your sunk costs from the past.  Those costs may have been sunk into relatively trivial things like books and movies or much more important things like relationships, jobs, etc.   However, the trap applies to the latter as well.  In fact the more important the issue, the bigger mistake it is to chase sunk costs.   It doesn’t matter how trivial or important the something you have invested in is in your life, the costs are still sunk.  Don’t compound your original mistake.

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