Many people continue a degree even though they do not enjoy the subject or stay in a career where they are not fulfilled. This lack of action to move toward an outcome that would be better, in the long run, as not to waste time, money, and effort already invested, is described by the sunk cost fallacy.
The sunk cost effect is manifested in a greater tendency to continue an endeavor once an investment in money, effort, or time has been made. Evidence that the psychological justification for this behavior is predicated on the desire not to appear wasteful is presented.Arkes & Blume
A Sunk cost is the time, money, and effort you have already spent in the course of action that you can’t get back. We like to think of ourselves as rational and make decisions based on the best outcome for our future, but most of the time, we are swayed by the money, time, and effort we have already spent on our current direction.
The sunk cost fallacy is where we choose not based on the outcome we think will be the best in the future but based on a desire not to see your past investment go to waste. In a study by Arkes and Blumer (1985), they found that those that had a sunk cost in a project were more likely to estimate that it would be successful than those assessing the same project that did not have any sunk cost. They also found that those with theatre subscriptions were more likely to continue to attend, even if they were not bothered about the show.
The Sunk cost fallacy is similar to other psychological theories, including prospect theory (loss aversion) by Kahneman and Tversky 1979. It describes how people weigh loss more heavily than gains when making decisions. Loss aversion cannot fully explain why we make these decisions, as there is no direct way to assess the gains in most situations the suck cost fallacy is present. Other related theories include Overoptimistics probability bias, where we overestimate the future positive outcomes of something we have already committed to, the sense of personal responsibility to continue on a course we are committed to, and the desire not to be wasteful.
Understanding the sunk cost fallacy should help us make better decisions, but in the original paper by Arkes and Blumer, they found that Economics graduates, who are taught the underpinning theories of this idea, were no better at avoiding its effects on decision making than everyone else.
How to use the Suck Cost Fallacy
Pay attention to your decisions. For the small things like reading books, watching films, or attending a show, if you are not enjoying it, think about the event’s opportunity cost.
Opportunity Cost: The loss of other alternatives when one alternative is chosen.Oxford Languages
If the next best thing you would be doing would bring you more happiness, stop reading a book, watching the film, or leave the show and do the other thing instead. It is even more critical for the big things to calculate what you are missing out on by not moving to that alternative course or career.
Push past the feelings of sunk cost and instead make decisions that lead to better outcomes for your future.