It also has been proven to impact the decisions that governments and companies make.Ī famous example of the sunk cost fallacy impacting large-scale decisions was coined the Concorde fallacy. The sunk cost fallacy not only has an impact on small day-to-day decisions like attending a concert. These outcomes range from deciding to stay with a partner even if we are unhappy because we’ve already invested years of our lives with them, to continuing to spend money renovating an old house, even if it would be cheaper to buy a new one because we’ve already invested money into it.
The fallacy affects many different areas of our lives leading to suboptimal outcomes. The sunk cost fallacy means that we are making irrational decisions because we are factoring in influences other than the current alternatives. If we acted rationally, only future costs and benefits would be taken into account, because regardless of what we have already invested, we will not get it back whether or not we follow through on the decision. It therefore should not be a factor in our current decision-making, because it is irrational to use irrecoverable costs as a rationale for making a present decision. 1 In the previous example, the $50 spent on concert tickets would not be recovered whether or not you attended the concert. In economic terms, sunk costs are costs that have already been incurred and cannot be recovered.
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