Imagine you have an old car that keeps breaking down. You already blew $1000 on repairs for it and now it’s broken down again. Would you spend another $200 to fix it?
Of course there’s a lot of factors. But there would probably be a voice inside your head saying “I’ve spent $1000 already, it only makes sense to spend another $200″.
Those $1000 are sunk costs. They shouldn’t impact your decision at all. All that matters is the current state and going forward – will spending the $200 be smarter than selling the car and getting a new one?
Whether it’s selling an old car, stopping a project, or ending a broken relationship… sunk costs can fool you into sticking with something you would be best off ending. So here’s how to deal with them…
How to defeat the “I’ve wasted $1000 already, it only makes sense to waste another $200″ thinking
There’s a reason why your mind insists on considering sunk costs. It comes down to commitment, which is a useful psychological state – for example it makes you happy in long-term relationships and more likely to finish your projects.
But like all psychological states, it can go wrong, holding you back in life rather than propelling you forward.
Here’s how to use sunk costs to your biggest benefit:
- Forget the past when making a decision – The past doesn’t matter. All that matters is which option will be the best from this moment forward.
- Realize that you made the right choice in the past – Commitment might trick you into repeating your mistakes to protect your ego. Hey, if you acknowledge those $1000 repairs were wasted, that means you made the wrong decision. Right?
Actually, you always make the best possible decision based on the available information. At the time, your decision to spend those $1000 was completely correct. Now you know it was a mistake, and you will learn from it, but at the time the decision was correct. - Realize making the same mistake again would be stupid – You were correct in spending your resources in the past (based on the available information), but spending any more would be a mistake. You now know it’s best for you to cut your losses. Forget the sunk costs, and think forward!
(image courtesy of kb35)
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{ 6 comments… read them below or add one }
This article is a good example of what I call ” The relativist approach to life…” . Making decisions according to the current circumstances while at the same time keeping in mind past mistakes is a great way of thinking….
Keep up the great work your’e doing
This one drives me nuts… the whole, “I’ve made my decision and I’m sticking with it!” mindset; especially coming from certain people who love to point out how logical they are.
It’s OK to change your mind. It doesn’t make you lok stupid. It’s not wishy-washy or unreliable, it’s just common sense.
http://www.artforthemasses.us/gallaria/GalleryImages/drawn/common_sense_god_damn_super_power.jpg
I think I’d like to tattoo point #3 on someone’s forehead.
Aloha Vlad!
To stay with the car example..
Well, until just recently (april 2008) my family had an old wreck back from ’89 and we spent hundreds of bucks on repair costs and insane amounts of benzine, so I can relate to what sunk costs are.
I think we spent the price of some quite good cars (and my long-awaited drumset) until we realized that repairing that garbage leads nowhere and buying a new vehicle is a much better idea.
When talking of sunk costs, you not only need to look at what’s been already spent, but you can reflect at what you are going to “sink” in the future if you don’t stop now.
Take care,
Zoli
Zoli Cserei´s last blog ..The Naked Truth About Personal Development
@Salman:
I like to call it a Markov Process (a maths term for a system where the past doesn’t matter, only the present (like flipping a coin, or roulette)), but it basically boils down to the same thing
@Gabrielle:
I love that picture
To be honest though, people who stick with common sense and ignore counter-intuitive evidence (especially in science) are equally annoying.
@Zoli:
I never realized you can apply the term “sunk costs” to the future as well! Brilliant!
thanks for the advice Vlad
@Farouk: You’re welcome!