When Sunk Costs Are Real

The sunk cost fallacy suggests that when we’ve sacrificed for a decision, we’re more likely to stick with it, even when changing course would make more sense. From attending an event you bought tickets for weeks ago but don’t feel like going to on the day to throwing our life savings into a failing business, sunk costs catch us all off guard at one point or another.

Most of the time, the fallacy is indeed a fallacy, especially when the previously incurred costs are actually not that great. If you absolutely hate a movie at the cinema one out of three hours in, you should probably leave. You’ve spent the $15 either way, there’s no point in wasting additional time just out of spite.

Similarly, when starting over comes with little consequence, it is also a mistake to stay married to a bad idea. Many college students switch majors after the first semester, and that’s perfectly fine. Six months are a small price to pay not only in the scope of a three- or four-year degree, but especially when considering that the end result might affect your career for the rest of your life.

“The trick to beating the fallacy is to look at investments as giving you options, not obligations,” Nat Eliason suggests. Instead of feeling obligated to make use of the free alcohol at your company Christmas party or the $75 concert tickets, see the money you spent as an investment that unlocks an option to do something later: You can take it, but you don’t have to.

Most of the time, this is a smart approach. Every now and then, however, it’s not. There are situations when sunk costs can and should have a real effect on what you’ll do next.

Sometimes, two great friends of mine ask me in our business mastermind session: “What would you do if you were starting Four Minute Books from scratch today? Would you even start it? What if you didn’t have that business?” It’s an interesting question, but in terms of what goal I should pursue next, it’s not all that helpful — because yes, I indeed run an eight-year-old book summary business that provides the vast majority of my income, and even if I were to completely pivot away from it, it’d probably make sense to leverage some of its assets and audience.

Similarly, if you’re a senior accountant who’s been at the firm for ten years, and your six-figure salary pays for your mortgage, stay-at-home husband, and child, just because you’d rather be an art teacher does not make quitting and going to community college very feasible, does it?

This isn’t to say that you can’t change any decision down the line, but it does suggest there’s a limit to sunk costs being “a fallacy.” After you’ve stuck with a choice long enough, eventually, the time, money, effort, and emotions you’ve invested will have real consequences. You can still alter the choice, but you’ll have to be more creative than simply nuking everything and restarting with a clean slate.

Thankfully, those consequences are rarely all bad. Given how much dedication we’ve put into a path by the time it becomes the first mate on our ship, it’ll likely come with some, maybe even plenty, of benefits. So even if it is no longer our preferred choice, there are some aspects of our current situation we can enjoy. Just because the cost is sunk does not mean it was wasted. Our sacrifices have still added up — just not exactly in the way we had hoped. When that happens, we absolutely should adjust the ship, but instead of throwing our first mate overboard, we should ask him to help us as best as he can.

When it comes to small losses and easily reversible mistakes, don’t let sunk costs get to you. Look at life as a sea of options, not a maze full of predetermined paths. When a significant chunk of your life or identity is wrapped up in a no longer optimal situation, however, be smart. Don’t squander your sunk costs. Work with them! Turn old efforts into new pellets for an engine that has a lot of steam left to give. Just make sure you adjust the steering wheel, and you can still reach your destination. Unlike costs, ships don’t sink so easily — and neither will you.