In Too Deep

Why the 'sunk cost fallacy' might be causing you to hold on to things that no longer serve you.

Imagine you're on a hike, heading towards a stunning lookout with an impressive waterfall. You've already covered 10 kilometres, traversing muddy tracks, steep hills, and slippery creeks throughout your journey. Then, with five kilometres left to the peak, you notice dark clouds rolling over in the distance. There's no doubt about it — it's about to bucket down and you're not prepared for rain. Do you turn around and start your descent home before the track potentially becomes dangerous? Or, do you figure 'I've come this far' and soldier on, to make it all feel worthwhile?

If you're leaning towards the latter, you — like most people — may be susceptible to the 'sunk cost fallacy.' Here's how to stop it from blocking your future personal growth.

What is the sunk cost fallacy?

Despite the name, this doesn't have anything to do with falling into quicksand — a fear most of us believed would be more prevalent in our adult lives, thanks to video games. Rather:

The 'sunk cost fallacy' is a psychological phenomenon where we are more reluctant to abandon a strategy, idea or thing if we've invested lots of time and money into it — even if it's clear the endeavour is going to be unsuccessful.

The term originated from the world of economics, with a 'sunk cost' being one that cannot be recovered. The fallacy commonly creeps into financial decision-making, when people stubbornly forge ahead with failing projects or investments because they can't face the idea of losing the money they've already poured into it.

It makes perfect sense as to why we do this, as humans are — by nature — loss averse. Research shows that we feel the pain of loss twice as intensely as we feel the rewards of gain. From an evolutionary perspective, our ancestors would have held onto their food with a white-knuckled grip — uncertain when another bountiful harvest would arise. If you've ever spent any time with a toddler, you'll notice this behaviour seems to be almost in-built. Try to take away one of their toys and you can rest assured they'll scream blue murder, even if they weren't really fond of it in the first place.

How to know when it's time to let go

Of course, this cognitive bias doesn't only apply to our finances and physical possessions. The sunk cost fallacy can be the reason we stay in jobs, relationships and living situations for longer than we should. The problem is, the 'sunk costs' — the time, money and emotional energy we've put into these situations — are already gone. Putting more of our resources won't change that or get them back: It just puts us further down a road we don't want to go down.

That said, it can be difficult to know when you're giving up too early, and when it's really time to cut your losses.