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Sunk Costs and Decision Making

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Sunk costs

Sometimes, quitting is the best thing you can do. Sometimes, not taking the past into account for your big decision is the best thing you can do. Taking into consideration your sunk costs into your decision making process is a horrible idea.

Ignore Time Spent, and Focus On The Now And Your Future For Better Decision Making

Sunk costs are costs that you already have incurred but you cannot recover. An important skill for time management, or for your life, is being able to make the right decision on how you spend your time. While the concept of sunk costs is often explained in economics classes and business schools by using the example of money, it is actually more applicable to time. Time is one of the few resources that once it is spent, it cannot be recovered. Money can be lost, but can always be gained again in some form or another. That does not apply to time.

As humans we are hardwired to hate the feeling of losing out on an investment. In the book Influence by Robert Cialdini the concept of commitment and consistency is explained: the more we invest into something, the more we want to behave in alignment with that commitment. If you have spent a lot of time on your business, you might feel that at some point there is no turning back. It’s get rich or die trying. Because you invested a lot of your time, you can feel like you lose all the time you have put into the business and feel like it is a waste. Actually, you have already lost all those hours. And guess what? You can’t recoup them. Just because you have spent a lot of time on your business, it does not mean that moving forward with it is the best decision. That lost time is a sunk cost. Ignore it. Perhaps it is better to quit your current business and move on to something else. This is just one common example that we see every day. Other common examples of where we feel just because we have spent a lot of time, we should finish the job, include:

  • Reading a book halfway and then find out it’s not as great as expected.
  • After a couple of years studying a degree you find out you want to do something else for a living.
  • Logging long hours into building your business that has not taken off yet.
  • Learning a skill but then you lost interest after a while.
  • You spent years in a relationship, lost the love, but you feel like there is no escaping.

Do not let these lost seconds force you to make a bad decision – ignore them. What you are going to do now should not be based on the amount of time you spent on that particular activity.

Winners never quit

We live in a society where people say things like “winners never quit” and alike. I disagree with that. Sometimes quitting is the best decision and you can be a winner another time. Trust me, that goal you have set for yourself won’t be running away. It will still be there. You have to learn how to ignore sunk costs and start keeping your eye on the prize. Past investments of time cannot be recovered so it should not affect how you will decide to spend your time right now and in the future. Just because you are halfway into a book, does not mean that you should finish it. If the book does not live up to your expectation, feel free to stop right now and start a new book. It doesn’t matter that you spent hours reading already. You cannot recoup the lost hours.

What you can do is consciously make the decision that finishing the book is not worth your time. Accept the fact that those seconds are lost forever and move forward. While sunk costs usually cannot help you make better decisions, your goals can. By being aware of your goals you can decide what the best use of your time is right now and forward. You want to try have your time spent to be in alignment with your goals. That is essentially the definition of productivity. Sunk costs do not belong in your decision making. Your goals do.

Next Action

Ask if you are in a situation where you take sunk costs into your decision making. Take those costs out of the equation, and re-evaluate your decision based on what your goals are.

Photo by moriza.

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Posted by Dana  | May 3, 2016 at 7:08PM | Reply

I’m first year student in college and my native language is Arabic not English so i faced some difficulties about sunk cost principle.. I couldn’t understand it without an examples..
Then I read your amazing explanation.. your article saved my life
and best of luck :*

Posted by Janeson Keeley  | April 12, 2015 at 8:11AM | Reply

Thanks for the reminder! I think this principle applies to things you bought and keep because they were so expensive (not because you use or still like them), as well as time spent on work, projects, or relationships that aren’t taking you where you want to go.

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