The sunk Cost Dilemma is a formal economic term that describes the emotional difficulty of choosing whether to continue with or abandon a given project or endeavour.
First, you may think I’m too pragmatic for that. Wrong! Well, OK, perhaps you are. We must stop thinking in absolutes.
Ever paid to get in a movie and thought 30% of the way through? This is rubbish but stay to the end anyway. GUILTY AS CHARGED. Sunk Cost Dilemma.
Ever watched a football team pay tens of millions for a player and continue to field them even when they are consistently NOT performing? Yep, Sunk Cost dilemma…
Watching your weight, eating healthy and having a moment of ill-discipline and consuming a bit of a pizza, then thinking, ah well, I might as well go for it now. YEP, “Sunk Cost Dilemma.
Still, remaining with the subject of eating, you ordered a meal and are 20% into it thinking, this is not good, and ate it anyway? Sunk Cost Dilemma…
Gambling is a classic example. This whole addiction/ industry is predicated on the “Sunk Cost Dilemma”..,.
It’s ubiquitous, from investment in relationships, ideas, food, health, businesses, entertainment spots, and governments. It cuts to everything!
So how is this driving your emotions when it comes to that savings plan, pension or investment product you are holding? Well, the design of the investment product itself plays on this. It’s almost certain that if you hold a savings or investment product, you will have two numbers that stick out. The overall value and the surrender/cash-in value. The latter is lower than the former and usually quite a bit lower. Like all the examples above and many more not mentioned, it’s folly to fixate on the pseudo-theoretical value. The supplier of this product relies on the human nature of the ‘sunk cost dilemma” you are experiencing, so you stick with it and continue saving and investing.
Our advice
Zoom out, detach and gain clarity…
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