There is always a flip side. Ask any personal finance guru about the sunk cost fallacy and they’ll probably describe it as an almost satanic phenomenon of human psychology. It is the tendency for us to continue to put more time and money into something which we’ve already put time and money into, just so that we don’t feel like we’ve wasted our time and money. There’s a good example below, but in short, this is just crazy fallacious. It is in our nature, however, so why fight it? Let’s use our natural weaknesses to our advantage. Let’s use the sunk cost fallacy to face our fears and accomplish our goals.
Here’s an example of how the sunk cost fallacy often plays out:
Imagine you spend a certain amount of money to go on a retreat. Let’s say it’s $1,000. You pay the $1,000. You’ve invested in this retreat. There’s a sunk cost. You cannot get your money back. As the weekend of the retreat approaches, your friend invites you to another event. This new event is free, and it will be a lot more fun than the retreat you were going to go to. Which will you attend?
The science says that you will almost always choose the $1,000 retreat because you’ve already invested a lot of money into it. Even though you’re out $1,000 no matter which event you go to, and even though your friend’s event will provide more enjoyment, you will tend to go to the event that you actually spent the money on, otherwise you will feel like you wasted it.
This is why you’ll keep studying French, even if you’d rather learn Mandarin. This is why you pursue a career as a lawyer even if you’d rather be a painter. You’ve already made an investment of time and/or money, and you’ll feel like it’s a waste if you “give up” and move on to something you’ll actually enjoy.
I used this knowledge against myself when I decided that I wanted to start this blog.
I purchased the web hosting right away. I was already out the money, so if I just sat around and didn’t create a blog, I would feel like I had just wasted that money.
Every day that I went without launching the blog felt like more wasted money. It pushed me to really dig in and focus on creating a quality design and quality content that was at least 80% there just so that I could launch.
Then I created a survey and reached out to my friends and colleagues on various social media platforms. I asked them to give me feedback on different names I was thinking about for the blog. Now that I had convinced other people to invest their time and energy into my project, I felt that I would be disappointing them if I didn’t follow through. So I did.
And after I had invested money in the blog, and after I had invested time in designing the blog and creating content, and after I had invested other people’s time in conducting research, and after I had invested time in launching the blog, I felt compelled to get the word out about my blog. After all, wouldn’t all of this investment of time and money have been wasted if nobody read the blog?
I had set myself up for success. If I hadn’t invested the money, I probably wouldn’t have invested the time and energy, and if I hadn’t invested the time and energy, I probably wouldn’t continue to invest the time and energy because I wouldn’t be invested in the project. Not because it’s not a noble endeavor, and not because I don’t find it enjoyable, but because our brains are largely on autopilot, and my brain would have found something else that it thought I needed to be doing so as to not “waste” time and money.
So here’s what you need to do: think long and hard about what you want to accomplish. Think really hard. The sunk cost fallacy is a powerful force, and if you spend your time and money on trivial things, or things that you really don’t want to do, then you will likely keep doing those things.
Once you have a list of goals that you want to accomplish, especially with regards to fears you want to face, think about what you can do to invest in those things financially.
Here are some examples:
- Want to go skydiving? Schedule a jump with the nearest facility and pay in advance.
- Want to go on a trip to Thailand? Pick a date and buy your plane ticket.
- Want to start a business? Lease a store or office to operate from.
- Want to learn French? Sign up and pay for a class at the local college.
Your investment will be much more powerful if it has a time component. If your flight leaves on a certain day, or if your web hosting is only good for a certain amount of time after you pay, you will have a built in deadline to keep you motivated.
Next, find people to disappoint.
The goal isn’t to actually disappoint them, but to feel like you’ll disappoint them if you don’t follow through. For this reason alone you should really make sure you’ve done the first step well: think long and hard about if this is something you actually want to do. It could be devastating if you realize that you don’t really want to learn French, but you keep trudging along because you don’t want to disappoint people. Do you really want to achieve this goal? Then carry on!
If you have a friend that will be very excited about you trying to learn French, tell them. They’ll likely harass you about whether you’ve been studying, and bring it up every time you see them. This is a good thing. They’ll hold you accountable. (I have a friend that asks me if there’s been a new blog post almost every time we speak, and that keeps me motivated.)
If you don’t have a friend who will harass you, perhaps you should pull out the wallet again and hire a personal tutor. Make sure it’s someone whose time you’ll actually value though. You need to find a tutor who A) will actually be disappointed if you give up, and B) is someone you don’t want to disappoint. If your tutoring sessions are all business, then they won’t really work for our purposes. Find someone who is passionate about tutoring, and you may just have a winner.
Another alternative, especially if you exchange gifts for birthdays or holidays, is to ask for things that relate to your goal. To continue with the French example, perhaps you’ll ask for novels in French, or French study guides. If you want to go skydiving, perhaps you’ll ask for a gift certificate to cover part of the cost, or have someone gift you frequent flier miles if you want to travel overseas.
I still have a watch that my late grandmother bought for me, even though I don’t wear it (and the batteries are probably dead). Gifts from people we admire can be very powerful, especially if they’re aligned with our aspirations. The Christmas where almost everyone got me notebooks because I was focusing on my writing will always stick in my mind.
Once you’ve invested money, and once you’ve got people to invest in you, it’s time to invest your own time and energy, if you haven’t already. For things like skydiving or travel, it’s really a one time thing. You go and you do it. You can always do research if you need to build up a further investment in your goal, so long as you don’t do so much research that you go into analysis paralysis. I did a ton of research for my trip to New Orleans. Don’t over think it.
If you want to learn a language or start a business, though, it’s definitely time to dig in and study. Bigger goals will need to be broken into small goals to make them measurable and manageable, so figure out how you’re going to break up those big goals. Feeling invested in a project is a powerful force, but you can still struggle with a big goal if it feels insurmountable. The sunk cost fallacy is not the only psychological force vying for control of your brain, even if it is a powerful one.
To reiterate those steps in a convenient step-by-step list you could print and keep at your desk, or in your wallet:
- Think about what you want to accomplish. Are you okay with feeling guilty if you don’t accomplish your goal? You better choose something else, then.
- Invest time and money into your goal, especially if the investment comes with a built in deadline (a flight, web hosting, classes, etc.) Hint: mo’ money, mo’ motivation.
- Find people to disappoint. Friends, family, tutors, strangers on the internet.
- Get those people to invest time and money in you (through gifts, research, or general interest in your goal).
- Invest your time and energy into your project (doing research, creating a website, writing a business plan, etc.)
In fact, I’ve created a printable Guide to Exploiting Sunk Costs, for your convenience. It’s a boiled down version of this post which you can keep in a convenient location or share with friends. Check it out.
Well-invested in your goal, you’ll find that you accomplish it in no time. It does bear repeating, though, that there are good reasons that personal finance writers warn against the sunk cost fallacy. It is a fallacy. It is inherently lacking in logic. If you invest enough time and money into a project, chances are that you’ll keep doing it because of how much you’ve invested, even if it stops being fun or even if your priorities change. Alternatively, you may stop working toward the objective, but then feel guilty because you’ve failed. Remember that there are right times and wrong times to be proud of your failure, and only you can decide if moving on is right for you. If it is, let it go. No sense beating ourselves up for something that we really don’t want to do.
For things that we do want to accomplish, though, the sunk cost fallacy is a weakness we can can exploit to our own advantage.
Want to read more about the sunk cost fallacy? Check out this great post on You Are Not So Smart which uses Farmville as a case study.
Do you have any goals that you can use the sunk cost fallacy to achieve? Any creative ideas for making investments in your goals? Share your thoughts in the comments below.
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