Am I caught in a sunk cost mistake?
Sunk Cost Fallacy - The Background Psychology
We have all experienced the sunk cost fallacy, consciously or unconsciously. Often times we buy expensive things from the market and then tend to overuse them to compensate for the price paid for the purchase. Similarly, when buying a fast food meal bucket, we eat as much as possible, not out of hunger, just because of the money that comes with buying that meal. The phenomenon applies to both a time and an effort, regardless of the money invested.
The irrational behavior that is consistent even after investing in time, money, or effort has led to a sunk cost fallacy. People who fall into the sunk cost trap of finding benefits related to their investment, which ultimately becomes the strongest urge to keep working on the project. Humans measure the effectiveness of every decision in the light of a cost-benefit analysis. The idea isn't just limited to money, it goes well with time and effort. Often times while watching a movie when you reach the interval and it seems boring to you, you don't stop and keep watching because your time and effort has already been wasted and you are dragging it to the end.
Decision-making in humans is not rational and is mainly influenced by the involvement of emotions. Thinking of and investing in a plan will overcome feelings of remorse or guilt when we are unable to accomplish that direction and not work in that direction. This creates an engagement bias, which means that we continue to strive consistently to support previous decisions even though they are unsuccessful.
It is important to mention that regardless of the time, money and effort that we have invested in a place, in an object or in someone; can never be reset. Instead of doing a new cost-benefit analysis, we design our decisions that are shaped by the previous costs incurred in making such decisions.
In the literature, the sunk cost error also occurs primarily due to loss aversion. It is said that individuals tend to overweight investment-related losses and gains tend to lag behind. We focus more on the losses associated with such actions rather than counting gains. Again, the term takes us back to our past as decisions are made based on decisions made in the past so that the loss can be averted. The services incurred are completely lost.
The impact of the sunk cost error on our lives is enormous. The process doesn't just affect our day-to-day decisions. it also has a long-term impact on decisions. Humans make a rational decision that leads to optimal results. Our focus remains on past investments and we stick to the decisions that are of least benefit to us. It's like a vicious circle, we keep investing money, effort and time in things that we have already used or have accrued. As we invest more, we are more inclined to work towards it, which results in more resources being used accordingly.
As mentioned above, we are all consciously or unconsciously implicated in this error. If we ever find out that we are falling prey to this victim, we can begin to analyze our decisions in light of the current scenarios and then map our efforts. The effort should be to invest in the specific action plan instead of feeling guilty. Even if the inclusion of emotions is removed from decision-making, the sunk cost trap of error can no longer catch us.
As humans, emotions are an integral part of our lives and play an essential role in influencing our decisions. With the enjoyment of information technology, rationalization can replace the emotional aspect and help us not to fall for the mistake of sunk costs.
The sunk cost error is about our efforts to keep investing even after we know the investment cannot be reclaimed. It all happens when our emotions control us and influence rational decision-making. This happens because the mere abandonment of the effort to make such investments leads to feelings of guilt and remorse. Therefore, in order to avoid such negative feelings, we tend to follow the previous decision-making pattern based on the previous investment.
The logic behind the process is that we try to avoid negative feelings associated with our emotions. We should make our emotions disproportionate with every decision so that it turns out to be rational. In reality, it's pretty hard to ignore our feelings and let go. It is advisable to use technologies that help to be rational and thus avoid the indulgence of emotions. Once decisions have been made rationally, the fallacy of sunk costs can easily be eliminated.
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