Sunk cost bias can create a vicious cycle. Learn what questions to ask yourself to know whether or not you should invest your time in something.

Sunk Cost Bias: When to Invest Your Time & When to Stop

Have you ever gone to a movie only to realize 20 minutes in that you kinda hate it? But you sit through it anyway because you spent money and time going to the theater? Or have you ever started a project, like painting a room, only to realize you hate the color, but feel pressured to continue? These are just small, real-life examples of sunk cost bias. Sometimes, though, we can be more involved with bigger tasks or even people that we don’t want to give up on because of all the time, money and energy we’ve put into it already.

The best way to decide how to make decisions and to avoid sunk cost bias is to learn about it. Because really, when we continue to do these things, we will end up being unsatisfied and really wasting even more time, money and energy.


Why Do We Do This?


It’s not just as simple as, “I’ve started and I feel bad for stopping or quitting.” It’s the endowment effect. That is the tendency to undervalue the things that are not ours and overvalue things because we own them.

Nobel prize winning researcher, Daniel Kahneman, conducted a study researching the endowment effect. He randomly gave coffee mugs to half of his subjects in an experiment. For the half with the mugs, he asked them how much they’d SELL their mugs for. To which they said no less than $5.25. To the other half without the mugs, he asked how much they would be willing to spend to BUY the mugs. To which they said $2.75 at the most.

Here, we can see that the mere fact of ownership has caused the mug owners to value their objects more highly. Even though they are the exact same mugs, they were less willing to part with them.

Take a moment to think about the items in your home that you don’t want to part with, but aren’t actually using or enjoying. They feel valuable to you because you’ve already spent money on them, or have had them for so long.

In terms of projects or tasks, it’s even harder to let go of them if you’re in a leader position. Whether you’re leading a project for work or at home, have committed to volunteering as a leader for a fundraiser or something else, we feel we own the activity. It’s just hard to uncommit.


Why Is it So Hard to Stop?


I think the root cause of sunk cost bias is our lifetime exposure to the “don’t waste” rule. We are trained to avoid appearing wasteful or abandoning an item or project. And when we do, we feel like we’ve wasted everything.

We want our investments to feel worthwhile. Even when we know deep down that our approach is wrong, we have a hard time accepting that and then abandoning the situation.

Everyone wants a good return on their investments, right? That being said, you need to make sure you’re not in a situation solely because you agreed to the investment in the first place. You don’t make a bad move better by spending more time and energy on it unless you can truly change the expected outcome.

Remember that it’s okay to cut your losses and move on – not every investment is going to be worthwhile.”

Even more, we fear looking foolish to others. Our egos don’t want us to admit imperfection – even to ourselves. But allow yourself to make mistake and admit them. I’ve talked a lot on the podcast and blog posts about how mistakes are truly the best way for us to learn. So it’s often a great idea to just embrace them!

Become proud of admitting your errors. Instead of focusing on the sunk cost, it’s good to take some pride in recognizing the cost that you’re actually going to incur if you stick with that old approach. We need to starting being okay with rerouting.


How Can We Stop Giving In To It?


First, we can stop giving in to sunk cost bias by being flexible. Flexibility is key when you’re planning or projecting. We can often lose sight of our goals and the grand scheme of things when we put so much effort into something. By keeping your goals visible, you can clearly see what tasks fit and what the sunk cost bias things are.

But the questions really are, “Can we really avoid sunk cost bias? Can we start making better decisions for ourselves?” And I think the answer is easy – YES. All we have to do is pretend we don’t own it yet.

Start by changing the way you question yourself. When we’re struggling with something, we all question how we’re doing. We make a pro-con list, we write out the good and the bad, etc. But actually, it’s all about changing the way you think.


The Solution: Ask Yourself These Questions


Here is a quick guide you can use to for different categories in order to make the best decision for yourself.

  1. For an object that you’re making a decision on. Instead of asking, “How much do I value this item,” ask yourself, “If I did not own this item, how much would I pay to obtain it?” You can see that the question is slightly different because I don’t want to know how much you think that item is worth. I want to know how much you would pay to obtain it if you didn’t own it.
  2. For an opportunity, instead of asking, “How will I feel if I miss out on this opportunity,” try asking yourself, “If I wasn’t already involved in this opportunity, how hard would I work to get on it?” Would you work as hard as you’re working right now to get on that opportunity or would you say, “This is not worth my time”? Again, pretend that you’re not already involved.
  3. For a project, instead of asking, “Why stop now, when I’ve already invested so much in this project,” try asking yourself, “If I wasn’t already invested in this project, how much would I invest in it now?”

Look at your experience and situations from an outsider’s point of view and assess it’s value. It’s not about always trying harder to make it work. It’s about what else you can do with your time or money or energy if you pulled the plug right now?


What’s next?


Going forward, I encourage you to borrow a principle from accounting and apply zero-based budgeting. Here, the accountant starts from zero, using last year’s budget as a baseline for projections. Everything on the budget must be justified from scratch. This type of accounting take more effort, but it efficiently allocates resources on the basis of need rather than history. And history, as we’ve seen, is what causes sunk cost bias.

Why is this done? It helps find exaggerated budget requests, draws attention to obsolete operations and encourages people to be clear with their purpose on how expense align with their projects.

I want you to think of your time as revenue or money in this scenario. I’m often comparing our time to this, as it’s a fluid resource just like our money is. Assume all previous commitments are gone and you are starting from scratch. Justify the use of your time, your energy and your resources from zero. Whether it’s in work, relationships, hobbies, or anything else. Use this as a lens to make your decisions with the bias of sunk cost being involved.

Next week I’ll be talking and writing about the lost art of quitting – which goes right along with this post. In the meantime, be thinking about your sunk cost bias and the situations you’re in. Are you sticking with something because they’re really making you happy or is it because you’ve been committing time or other resources for some time already?

Feel free to comment below or connect with me on social media. I’d really like to hear about any strategies you have for when you’re involved in sunk cost bias or if there is something you’re planning on moving on from!

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Tonya Dalton
Tonya Dalton