How the 'sunk cost fallacy' wreaks havoc on your money and your mind
We all make mistakes. However, acknowledging them can help you overcome the "sunk cost fallacy" and move on.
Sometimes we do things that make no sense — even if we know, in the long run, the effort involved isn’t worth the reward.
Take, for example, if you bought a $100 concert ticket that was nonrefundable. On the day of the concert, though, there is a blizzard warning — the streets are full of snow, and — the cherry on the cake —you have a cold. No matter the obstacles, you decide to go still — because otherwise, you would have wasted that money. It doesn’t matter that it would be better for your health and safety to stay home — you’ve already invested that money. That is just one example of the "sunk cost fallacy."
The sunk cost fallacy is a commitment to something based on previously invested money, effort or time. We are unwilling to walk away from the choice that we or someone else has made — even if, rationally, we know a different decision could lead to more money or more happiness.
We care about what others invest, too.
We’re willing to continue to invest our time if someone else has invested money in it. Courtesy ForeverJobless.com
In a recent series of experiments, Christopher Y. Olivola found that we also loathe walking away from other people’s investments, as well. The assistant marketing professor at Carnegie Mellon University Tepper School of Business stumbled onto this information while working on his doctorate, and found that everyone from normal people to big corporations fall into the trap.
In the study, which was published in Sage Journals in May, Olivola found that “... participants were more likely to choose the less enjoyable alternative when they had invested substantial amounts of their own time or money to obtain it than when they had invested little or nothing.”
The experiments utilized Amazon’s Mechanical Turk to ask people a series of questions, and the questions regarding the sunk cost fallacy were hidden amongst other, unrelated questions.
In the first scenario, participants were to imagine that they had front row tickets to a basketball game. A bad storm was coming, and travel to the game could be hazardous, but they couldn’t exchange the tickets. They had to imagine either they or a friend obtained the tickets for free, or either party had to pay $200 for them. In the case of a sunk cost, from either them or a friend, 54 percent of respondents said that they would go. Even if it would be unpleasant due to the weather.Even if it would cause injury, we’re likely to keep doing something if someone else paid a hefty sum for it.
Fifty percent of respondents say they would continue to use a tennis club membership if someone else had paid a significant amount for it, even after they’d been injured and continuing to play would aggravate the injury.
This process repeated itself over and over, with people saying they would choose the outcome least likely to make them happier because someone else had invested in it.
The study participants said they’d eat a whole slice of chocolate amaretto Kahlua cheesecake if someone had spent a lot of money on it and driven far to obtain it, even if they were really full and the cake was sickeningly rich.
In his study, Christopher Y. Olivola found we’re likely to follow in our predecessor’s shoes, even if it could be a mistake.
The sunk cost fallacy doesn’t just apply to interpersonal behaviors, either — even savvy business people fall into its trap. In one scenario, participants imagined they were the president of an airline company that had a $100 million research budget. Ninety-nine million had been invested in projects, and a competitor just came out with a plane that was more fuel efficient, cheaper, and faster than theirs. Participants were in favor of using that money for other projects when that $99 million had been invested in a variety of topics. However, they were much more likely to invest a larger portion of that $1 million that was left (62.68 percent in favor) if their predecessors had invested most the original money into a new plane — even though they knew another firm had already beaten them to a better alternative.
Don’t pour more time, energy, or money into something that’s already failing. Courtesy of CEC
How to turn the ‘sunk cost fallacy’ in your favor
In the study, participants agreed that they would continue watching a movie that someone else had invested money in, even if they didn’t like it.
What we seem to forget, though, is that the person who had made the original investment would be more upset about the fact that we were unhappy than the original sunk cost.
If we can understand the sunk cost fallacy and when it’s playing a role in our decision making, we could reduce unnecessary burdens in our lives. There are some burdens that we commit ourselves to — beyond rationality.
By recognizing that not all costs are worth the following investment, we can move forward. As Julia Galey says, it’s hard to move past our sunken costs, “...because some costs are painful. But at least having the sunk cost fallacy on your radar at least, you have the opportunity to push past that and make the choice instead that will lead toward the better outcome for your future.
When you take the time to recognize that you’re falling into the trap of a sunk cost, it’s time to stop and take stock of the pros and cons of a decision. If the only pro is the emotional investment, then it’s time to abandon that track and make smarter, more rational decisions.
Scientists think constructing a miles-long wall along an ice shelf in Antarctica could help protect the world's largest glacier from melting.
- Rising ocean levels are a serious threat to coastal regions around the globe.
- Scientists have proposed large-scale geoengineering projects that would prevent ice shelves from melting.
- The most successful solution proposed would be a miles-long, incredibly tall underwater wall at the edge of the ice shelves.
The world's oceans will rise significantly over the next century if the massive ice shelves connected to Antarctica begin to fail as a result of global warming.
To prevent or hold off such a catastrophe, a team of scientists recently proposed a radical plan: build underwater walls that would either support the ice or protect it from warm waters.
In a paper published in The Cryosphere, Michael Wolovick and John Moore from Princeton and the Beijing Normal University, respectively, outlined several "targeted geoengineering" solutions that could help prevent the melting of western Antarctica's Florida-sized Thwaites Glacier, whose melting waters are projected to be the largest source of sea-level rise in the foreseeable future.
An "unthinkable" engineering project
"If [glacial geoengineering] works there then we would expect it to work on less challenging glaciers as well," the authors wrote in the study.
One approach involves using sand or gravel to build artificial mounds on the seafloor that would help support the glacier and hopefully allow it to regrow. In another strategy, an underwater wall would be built to prevent warm waters from eating away at the glacier's base.
The most effective design, according to the team's computer simulations, would be a miles-long and very tall wall, or "artificial sill," that serves as a "continuous barrier" across the length of the glacier, providing it both physical support and protection from warm waters. Although the study authors suggested this option is currently beyond any engineering feat humans have attempted, it was shown to be the most effective solution in preventing the glacier from collapsing.
Source: Wolovick et al.
An example of the proposed geoengineering project. By blocking off the warm water that would otherwise eat away at the glacier's base, further sea level rise might be preventable.
But other, more feasible options could also be effective. For example, building a smaller wall that blocks about 50% of warm water from reaching the glacier would have about a 70% chance of preventing a runaway collapse, while constructing a series of isolated, 1,000-foot-tall columns on the seafloor as supports had about a 30% chance of success.
Still, the authors note that the frigid waters of the Antarctica present unprecedently challenging conditions for such an ambitious geoengineering project. They were also sure to caution that their encouraging results shouldn't be seen as reasons to neglect other measures that would cut global emissions or otherwise combat climate change.
"There are dishonest elements of society that will try to use our research to argue against the necessity of emissions' reductions. Our research does not in any way support that interpretation," they wrote.
"The more carbon we emit, the less likely it becomes that the ice sheets will survive in the long term at anything close to their present volume."
A 2015 report from the National Academies of Sciences, Engineering, and Medicine illustrates the potentially devastating effects of ice-shelf melting in western Antarctica.
"As the oceans and atmosphere warm, melting of ice shelves in key areas around the edges of the Antarctic ice sheet could trigger a runaway collapse process known as Marine Ice Sheet Instability. If this were to occur, the collapse of the West Antarctic Ice Sheet (WAIS) could potentially contribute 2 to 4 meters (6.5 to 13 feet) of global sea level rise within just a few centuries."
The world's getting hotter, and it's getting more volatile. We need to start thinking about how climate change encourages conflict.
- Climate change is usually discussed in terms of how it impacts the weather, but this fails to emphasize how climate change is a "threat multiplier."
- As a threat multiplier, climate change makes already dangerous social and political situations even worse.
- Not only do we have to work to minimize the impact of climate change on our environment, but we also have to deal with how it affects human issues today.
Human beings are great at responding to imminent and visible threats. Climate change, while dire, is almost entirely the opposite: it's slow, it's pervasive, it's vague, and it's invisible. Researchers and policymakers have been trying to package climate change in a way that conveys its severity. Usually, they do so by talking about its immediate effects: rising temperature, rising sea levels, and increasingly dangerous weather.
These things are bad, make no mistake about it. But the thing that makes climate change truly dire isn't that Cape Cod will be underwater next century, that polar bears will go extinct, or that we'll have to invent new categories for future hurricanes. It's the thousands of ancillary effects — the indirect pressure that climate change puts on every person on the planet.
How a drought in the Middle East contributed to extremism in Europe
(DANIEL LEAL-OLIVAS/AFP/Getty Images)
Nigel Farage in front of a billboard that leverages the immigration crisis to support Brexit.
Because climate change is too big for the mind to grasp, we'll have to use a case study to talk about this. The Syrian civil war is a horrific tangle of senseless violence, but there are some primary causes we can point to. There is the longstanding conflicts between different religious sects in that country. Additionally, the Arab Spring swept Syria up in a wave of resistance against authoritarian leaders in the Middle East — unfortunately, Syrian protests were brutally squashed by Bashar Al-Assad. These, and many other factors, contributed to the start of the Syrian civil war.
One of these other factors was drought. In fact, the drought in that region — it started in 2006 — has been described as the "worst long-term drought and most severe set of crop failures since agricultural civilization began in the Fertile Crescent many millennia ago." Because of this drought, many rural Syrians could no longer support themselves. Between 2006 and 2009, an estimated 1.5 million Syrians — many of them agricultural workers and farmers — moved into the country's major cities. With this sudden mixing of different social groups in a country where classes and religious sects were already at odds with one another, tensions rose, and the increased economic instability encouraged chaos. Again, the drought didn't cause the civil war — but it sure as hell helped it along.
The ensuing flood of refugees to Europe is already a well-known story. The immigration crisis was used as a talking point in the Brexit movement to encourage Britain to leave the EU. Authoritarian or extreme-right governments and political parties have sprung up in France, Italy, Greece, Hungary, Slovenia, and other European countries, all of which have capitalized on fears of the immigration crisis.
Why climate change is a "threat multiplier"
This is why both NATO and the Pentagon have labeled climate change as a "threat multiplier." On its own, climate change doesn't cause these issues — rather, it exacerbates underlying problems in societies around the world. Think of having a heated discussion inside a slowly heating-up car.
Climate change is often discussed in terms of its domino effect: for example, higher temperatures around the world melt the icecaps, releasing methane stored in the polar ice that contributes to the rise in temperature, which both reduces available land for agriculture due to drought and makes parts of the ocean uninhabitable for different animal species, wreaking havoc on the food chain, and ultimately making food more scarce.
Maybe we should start to consider climate change's domino effect in more human and political terms. That is, in terms of the dominoes of sociopolitical events spurred on by climate change and the missing resources it gobbles up.
What the future may hold
(NASA via Getty Images)
Increasingly severe weather events will make it more difficult for nations to avoid conflict.
Part of why this is difficult to see is because climate change does not affect all countries proportionally — at least, not in a direct sense. Germanwatch, a German NGO, releases a climate change index every year to analyze exactly how badly different countries have been affected by climate change. The top five most at-risk countries are Haiti, Zimbabwe, Fiji, Sri Lanka, and Vietnam. Notice that many of these places are islands, which are at the greatest risk for major storms and rising sea levels. Some island nations are even expected to literally disappear — the leaders of these nations are actively making plans to move their citizens to other countries.
But Germanwatch's climate change index is based on weather events. It does not account for the political and social instability that will likely result. The U.S. and many parts of Europe are relatively low on the index, but that is precisely why these countries will most likely need to deal with the human cost of climate change. Refugees won't go from the frying pan into the fire: they'll go to the closest, safest place available.
Many people's instinctive response to floods of immigrants is to simply make borders more restrictive. This makes sense — a nation's first duty is to its own citizens, after all. Unfortunately, people who support stronger immigration policies tend to have right-wing authoritarian tendencies. This isn't always the case, of course, but anecdotally, we can look at the governments in Europe that have stricter immigration policies. Hungary, for example, has extremely strict policies against Muslim immigrants. It's also rapidly turning into a dictatorship. The country has cracked down on media organizations and NGOs, eroded its judicial system's independence, illegalized homelessness, and banned gender studies courses.
Climate change and its sociopolitical effects, such as refugee migration, aren't some poorer country's problem. It's everyone's problem. Whether it's our food, our homes, or our rights, climate change will exact a toll on every nation on Earth. Stopping climate change, or at least reducing its impact, is vitally important. Equally important is contending with the multifaceted threats its going to throw our way.
You can learn good design through these books. Most of which is avoiding bad design.
- Like chess, Formula 1, and making ravioli... design has rules.
- The rules are flexible. But the main point of these rules is to avoid bad design.
- The best part? It's achievable.
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