Yahoo Finance What is 'sunk cost fallacy' and why do we fall prey to it at work
It’s extremely difficult to walk away from a project that you’ve poured your heart and soul into. You may keep telling yourself that your hard work will pay off, or that the money you’ve spent doing it will be worth it in the long run. So instead of cutting your losses, you keep sinking more of your time, effort and finances into it — a psychological phenomenon called the sunk cost fallacy.
The sunk cost fallacy, or sunk cost effect, occurs when you choose to do something just because you have invested our resources in it in the past. Instead of focusing on the present or future costs and benefits — which would be the rational, optimal choice — you focus on what you’ve already spent and commit to decisions that are no longer working for you.
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“The sunk cost fallacy is a cognitive bias. Essentially, it's the idea of ‘throwing good money after bad’ – where we get stuck in the idea that changing course will mean the sunk costs will have been wasted,” says Dr Claire Vowell, founder of the Corporate Psychologist.
Although this heuristic can crop up anywhere – for example, it may explain why you feel compelled to finish a book you don’t like because you started it — but it can affect your career, too.
“It is common in the workplace when people feel they have invested heavily in a career, and that making a change would mean a lot of wasted time, money and energy,” says Vowell. “I see this frequently where high achievers have followed traditional career paths, which have involved huge amounts of time, effort and dedication. For example, in law or finance.”
Frustratingly, the longer we stay trapped in the sunk cost fallacy mindset, the harder it can be to break free. “This is because we continue to invest and the costs continue to rise,” says Vowell.
Impact of the sunk cost fallacy in the workplace
One of the biggest negative consequences for employees is stress and burnout. You may feel emotionally tied to a job that you no longer enjoy, just because you’ve done it for years. But if you are in a job you don’t like, the additional strain of trying to succeed, or appear to be engaged, can create a huge amount of stress and contribute to poor mental health.
“For employers, continuing to invest in failing projects can demoralise employees, leading to decreased motivation and higher turnover rates,” adds Vowell.
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It can also lead to financial trouble, especially if an employer sinks more and more money into a project that isn’t financially viable because the idea of abandoning it seems worse than starting again with a new approach.
Dr Carolyne Keenan, a registered psychologist, adds: “This phenomenon can often come into play with advertising strategies or business ideas. Once we have invested time into something it can be hard to let it go even if it isn't bringing us the results we want.”
“It normally manifests as loss aversion, or a bias towards the plan that was originally committed to,” she adds. “It’s the feeling that further investment by changing the approach would be a waste of resources. There may also be a personal or emotional attachment to a project or decision.”
How to know when to walk away
“First, take time to reflect on the sunk cost fallacy and whether it resonates with you. It’s a common bias and people often fall into this thinking trap. We don’t want to introduce any self-criticism,” says Vowell.
The signs of the sunk cost fallacy can include experiencing repeatedly poor outcomes despite your best efforts. The situation may also be taking its toll on your wellbeing or confidence – especially if you’re feeling increasingly unsure about a project or your career path. Finally, if you can’t think of a reason to continue in a career or project other than the time or money you’ve invested so far, it might be time to reevaluate.
That being said, it can be hard to know whether to see something through or whether to walk away. For example, it’s normal to go through a rough patch in a career, or to feel like you’re stuck in a rut. However, this doesn’t mean you should definitely quit — it could just be a hurdle to navigate.
Vowell advises thinking about what you want from your job and to consider your own values and definition of success. “I work with my clients to understand the influences and expectations that led to a particular career choice,” she says.
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“Sometimes a particular career trajectory is initiated when you are just a teenager and could have been heavily influenced by parents, or teachers, and their expectations,” she adds.
“It doesn’t necessarily hold that this is the right choice for us once we’re in our 20s or 30s, or beyond. If your current role isn’t aligned with your values, what might move you closer to them?”
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