One time or another, we have all suffered from the Sunk Cost Fallacy. Whether it be a financial or even an emotional investment, such as relationship with another person, there are some things we just can't let go. Here, I will try to explain why.
The character Jimmy McGill on the TV series "Better Call Saul" is far from an ordinary ambulance chasing lawyer, as we are first thought to believe. Throughout the series "Breaking Bad", in which he masterminds some of Walter White's more hair-brained schemes, he is almost seen as a pushover lawyer when he comes face-to-face with Walter's alter-ego, the infamous 'Heisenberg', doing anything to make a quick buck. This includes choosing to defend the criminals of New Mexico and networking with some very shady characters, such as Mike Ehrmantraut.
But what we learn while watching the prequel series, is that Saul Goodman, or Jimmy McGill as he is known, is an extremely intelligent and perceptive con man. In the first episode of season two, after declining the job offer at Davis & Main, Kim Wexler confronts him as to why his is acting, in her mind, out of character. After putting all that time and effort into finally being recognised for his work as an attorney, she can't understand why he is throwing this great opportunity away. Jimmy explains;
Another experiment conducted by Lavery (1995) studied the breeding behaviour of convict cichlids, a species of fish native to Central America. Lavery compared the aggressiveness of cichlids, that had bred three time previously, to a predator, compared to fish that never bred before. The study found that the more experienced cichlids defended their brood more aggressively than those fish that had only bred for the first time. It can be concluded that this is evidence of sunk cost behaviour, as the fish which are on their fourth brood, have a much higher parental investment. But it can also be argued that the reason the less experienced fish protect their first brood less, is because they more opportunities in the future to breed again, while the more experienced fish are aware they have the potential to raise fewer broods in the future. Of course the more vigorously the fish defends their brood, the higher the risk for the fish to get injured, jeopardising the chance for the fish to continue breeding later on.
But what we learn while watching the prequel series, is that Saul Goodman, or Jimmy McGill as he is known, is an extremely intelligent and perceptive con man. In the first episode of season two, after declining the job offer at Davis & Main, Kim Wexler confronts him as to why his is acting, in her mind, out of character. After putting all that time and effort into finally being recognised for his work as an attorney, she can't understand why he is throwing this great opportunity away. Jimmy explains;
'The fallacy of sunk cost… It’s what gamblers do. They throw good money after bad thinking they can turn their luck around. It’s like, “I’ve already spent this much money or time… whatever. I got to keep going!” No, there’s no reward at the end of this game.'
It is at this point, the viewer can almost read this statement as a more over-arching theme to the man Jimmy McGill later becomes, Saul Goodman. With "Better Call Saul" being a prequel series, we already know from watching Breaking Bad how his game will end. All throughout the series so far, as the main protagonist, the viewer is backing Jimmy to do well, to get the good paying job at a respected law firm to prove to his brother Chuck that he is no longer that low life con man of his past life, and for his friendship with Kim to continue to grow and evolve into a long lasting relationship. But we know it won't. As much time and effort he puts into becoming a better person, we know, and maybe somehow Jimmy also knows, that in the end it will be all for nought. After all, why deny the person he is supposed to be?
This scene made me think a little more about the term 'Sunk Cost Fallacy' and even though it is used in a economic sense, whether is can be used to describe decisions that people make every day. Unsurprisingly, I uncovered a number of psychological studies aimed at trying to understand what makes us fall for the very idea of wasting our time and effort on lost causes.
From a basic economic viewpoint, a sunk cost is an unrecoverable cost from an already incurred investment. The definition at businessdictionary.com describes a sunk cost as;
"Money already spent and permanently lost. Sunk costs are past opportunity costs that are partially (as salvage, if any) or totally irretrievable and, therefore, should be considered irrelevant to future decision making. This term is from the oil industry where the decision to abandon or operate an oil well is made on the basis of its expected cash flows and not on how much money was spent in drilling it."
A paper published by Arkes & Ayton (1999) attempted to try and understand why humans continue to honour sunk costs, while other animals, such as rats, do not. They refer to this sunk cost effect as the "Concorde Fallacy", named after the Concorde aircraft, where the governments financing the Concorde project continued to do so even when they knew ultimately the project was doomed. They did so because they have already invested a great deal of money into the project.
So, in the animal kingdom, is there any evolutionary advantage to investing in sunk costs? An example would be where a male and female produce two offspring, where one offspring is older than the other. There is a dramatic decrease in resources and keep both offspring alive and the parents must make a choice; which one do they keep alive? The newborn offspring which would take more parental investment and resources, or the older offspring that they have already invested in? According to Trivers (1972), the parents will favour the older offspring. But is this evidence of the sunk cost fallacy in lower animals? Or do the parents choose the older offspring based solely on their assumptions that the older offspring will require less resources in order to bring it to adulthood?
Another study by Weatherhead (1979) examined savannah sparrows and their defensive behaviour of their nests during their breeding season. With a short window for these birds to breed, Weatherhead studied those birds that arrived at the breeding grounds early compared to those that arrived late. Weatherhead theorised that either those birds that arrived early would defend their nests more vigorously than those that arrived later, as they had invested more time into their nests and eggs, or the birds that arrived late would defend their nests more vigorously, as the birds that arrived early would have enough time to create a new nest and lay more eggs if their first nest was attacked. What Weatherhead found was that the birds that arrived early in the breeding season, did in fact defend their nests more vigorously than those that arrived later, concluding evidence of past investment determined their behaviour.
Another experiment conducted by Lavery (1995) studied the breeding behaviour of convict cichlids, a species of fish native to Central America. Lavery compared the aggressiveness of cichlids, that had bred three time previously, to a predator, compared to fish that never bred before. The study found that the more experienced cichlids defended their brood more aggressively than those fish that had only bred for the first time. It can be concluded that this is evidence of sunk cost behaviour, as the fish which are on their fourth brood, have a much higher parental investment. But it can also be argued that the reason the less experienced fish protect their first brood less, is because they more opportunities in the future to breed again, while the more experienced fish are aware they have the potential to raise fewer broods in the future. Of course the more vigorously the fish defends their brood, the higher the risk for the fish to get injured, jeopardising the chance for the fish to continue breeding later on.
So now that we've looked at the potential of the sunk cost fallacy in less evolved animals, why do humans exhibit the same sunk cost fallacy behaviour? Arkes and Blumer (1985) suggested that this is because we don't want to be seen as wasteful. They questioned;
Assume that you have spent $100 on a ticket for a weekend ski trip to
Michigan. Several weeks later you buy a $50 ticket for a weekend ski
trip to Wisconsin. You think you will enjoy the Wisconsin ski trip
more than the Michigan ski trip. As you are putting your just purchased
Wisconsin ski trip ticket in your wallet you notice that the
Michigan ski trip and the Wisconsin ski trip are for the same weekend?
It's too late to sell either ticket, and you cannot return either one.
You must use one ticket and not the other. Which ski trip will you go
on? (p. 126)
Over half the participants who were asked this question decided they would still go on the ski trip to Michigan, because they would feel like they were wasting more money if they chose the ski trip to Wisconsin instead, even though they would enjoy it less. But is this only because we don't want to appear wasteful or is there more to it? Is it maybe because we feel like we need to justify our decisions to ourselves?
Consider this experiment by Tversky and Kahneman (1981) where they asked participants this scenario;
Imagine that you have decided to see a play where admission is $10
per ticket. As you enter the theater you discover that you have lost a
$10 bill.
Would you still pay $10 for a ticket for the play?
Yes (88%) No (12%)
Imagine that you have decided to see a play and paid the admission
price of $10 per ticket. As you enter the theater you discover that you
have lost the ticket. The seat was not marked and the ticket cannot be
recovered.
Would you pay $10 for another ticket?
Yes (46%) No (54%)
It can be concluded that people, as way of justifying not purchasing a new ticket after loosing the first one, saw their decision as simply having already assigned a value to the ticket, so believed buying another ticket at $10 would value the new ticket at $20 and too expensive.
So ultimately, why do we hold onto sunk costs, not only from a financial viewpoint but a social one too? If there is one thing we humans invest a lot in, it's time. Time we put into making our lives the way we want them with the people we want in them. It is inevitable that throughout our lives, there will naturally be people that we are drawn to and people that drift away from us. But sometimes there are those relationships where even though the relationship does not benefit either person any more, we feel like we must keep it going, because after all, just think about all that time both of you invested into the relationship. If you were to cut ties now, think about all that time you would have wasted on them. But a sunk cost is exactly that, it's sunk, and it's not recoverable. Either way, there is no way of getting your invested time back, you are only incurring more accumulative expenditure on that person.
So why do we experience the sunk cost fallacy at all? What evolutionary benefit does it have? Let's look back at the cichlids and their breeding behaviour. For the fish here, experience is the key, it's the deciding factor of how much they believe in their prior investment. So for us humans, we might be able to apply a similar idea. We fall into the sunk cost fallacy because we want our investments to succeed, even if we know they ultimately will not. But with all that time we invest, we are getting something out of it; we are gaining experience. Experience we can draw upon in the future to make better decisions. But sometimes we need to be aware of falling into the trap that a sunk cost can have us committing to, and just like the less experienced fish that look toward the future, we must remind ourselves; there are plenty more fish in the sea.
So why do we experience the sunk cost fallacy at all? What evolutionary benefit does it have? Let's look back at the cichlids and their breeding behaviour. For the fish here, experience is the key, it's the deciding factor of how much they believe in their prior investment. So for us humans, we might be able to apply a similar idea. We fall into the sunk cost fallacy because we want our investments to succeed, even if we know they ultimately will not. But with all that time we invest, we are getting something out of it; we are gaining experience. Experience we can draw upon in the future to make better decisions. But sometimes we need to be aware of falling into the trap that a sunk cost can have us committing to, and just like the less experienced fish that look toward the future, we must remind ourselves; there are plenty more fish in the sea.
