Why Pay Twice?

What to Do about the Sunk Cost Fallacy

This is the second part of a three-part series on glitches in our thinking. You can read the first part, “Think Better: What to Do about Motivated Reasoning,” here. And check back next week for some final thoughts, as well as a challenge and a recipe.

Many years ago, my then-boyfriend (now husband) Matt and I went to see the play Tour de Farce. The tickets were expensive, but the play had garnered rave reviews, and we both loved (and still love) farces.¹ Besides, we had read that the two actors portrayed about a dozen different characters, and we were curious to see how they pulled it off.

Alas, the play was dreadful. The acting was hammy and the tedious script trafficked in racist stereotypes (a thieving Latina hotel maid). At intermission, Matt asked what I thought, and I grimaced. He said, “We could just leave.” Shocked, I protested, “But we paid so much for our tickets!” “Why pay twice?” Matt asked. “Either way we’ve already lost the money, but if we stay we lose another hour of our lives too.” Mind blown! We dashed out of the theater and did not look back.

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The Sunk Cost Fallacy

My intuition that we ought to sit through the second half of that wretched play because we had already bought our tickets is a classic example of the sunk cost fallacy. As this helpful article puts it, “The sunk cost fallacy is our tendency to continue with an endeavor we’ve invested money, effort, or time into—even if the current costs outweigh the benefits.” The sunk cost fallacy traps us in a vicious circle, in which the more we invest, the more we feel we have to persist with a failing enterprise, erroneous belief, unhappy relationship, and the like.

Source.

I have fallen afoul of the sunk cost fallacy while hiking too. After taking the wrong path and scrambling over hostile terrain, I’ll keep forging ahead even though I suspect I’ve lost my way—because if I turn around, all that time and effort will have been for nothing. But on hikes and in life, if we persist in the wrong direction, things will only get worse. Better to dump those sunk costs, turn around, and try again.

For example this hike, where the steep path was buried in snow and ice. I should have turned back long before getting this far.

The most stubborn sunk costs of all are those beliefs and actions that we feel are crucial to our identity, because giving them up feels like rejecting a fundamental aspect of who we are. My favorite example of an identity-based sunk cost appears in the famous scene below, from This Is Spinal Tap. Nigel Tufnel shows Rob Reiner the dials on his amp and says, triumphantly, “These go to eleven.”²

Rob points out, reasonably, that the band could just “make ten louder and make ten be the top number.” He is met with a blank look, and then Nigel just reasserts his original point. Poor Nigel! He thought he had figured out a clever and unique way to make Spinal Tap the most badass metal band of all, only to have Rob burst his bubble. One reason this scene is funny is that we’ve all been there. At some time or other, we have all clung to foolish beliefs in the face of the evidence, because it is too painful to our sense of self to let them go.

So how do we help ourselves and each other resist sunk cost thinking? Below are a few stories and ideas.

Sunk Costs and the Quartz Shock

The sunk cost fallacy can devastate whole communities; it happened in Switzerland, where I live.³ Beginning in the sixteenth century, Switzerland has been famous for its accurate, meticulously-crafted mechanical watches. The watches were made in small, local enterprises, especially in the Jura mountains and around Neuchâtel. Families worked together to make components by hand, and skilled workers assembled the watches. Watchmaking supported many prosperous communities.

Then, in the 1960s, scientists discovered that when electric current is run through quartz, the quartz vibrates at a fixed frequency, a discovery that revolutionized watchmaking. Suddenly, it was possible to make inexpensive, highly accurate, nearly indestructible watches using quartz instead of mechanical movement. Japanese manufacturers adopted this technology and became enormously profitable. Swiss watchmakers, by contrast, chose not to adopt the quartz technology, because they took pride in their way of doing things and also thought that it would be too difficult and expensive to consolidate their small, local businesses into large, modern factories. They gambled that people would still buy their watches, and they lost: “They were basically selling a functionally obsolete product now, and they could not compete on cost, and they could not compete on accuracy.”

The Swiss watch industry eventually pivoted to luxury watches, but the smaller, local watchmaking communities never recovered from the quartz shock. To this day Cantons Neuchâtel and Jura are poorer than the rest of Switzerland and have higher rates of crime and unemployment. The story of the Swiss watch industry is now a parable for how the sunk cost fallacy can lead to economic crises.

Bad as it was for the Swiss watchmakers, it’s actually easier to resist sunk cost thinking in the world of business than in our personal lives, because of economic incentives: We don’t want to throw good money after bad. In our own lives, by contrast, we can get stuck in the sunk cost fallacy because of the cultural bias against cutting our losses. Our culture tends to view quitting as lazy, and quitters as failures who should have tried harder. This bias against quitting applies to opinions too. Many commentators heap scorn on people who publicly change their minds, characterizing them as wishy-washy flip-floppers instead of as rigorous thinkers who weigh the evidence before adopting a position.

It’s important to remind ourselves and each other that this bias against quitting is a pernicious example of the sunk cost fallacy. When someone we care about is struggling, we can simply say, “It’s ok to just stop, you know.” When we hear people express doubts about beliefs they had formerly been convinced were true, we can mention times we changed our minds and were better off for it. And if we learn that a friend or loved one has quit something, we can praise them for doing the smart thing, because the world needs more quit and less grit.

The Road to Hell Is Paved with “We’ve Always Done It This Way”—and Good Intentions

As Nigel Tufnel reminds us, the most intractable sunk costs are beliefs and actions that we feel are intrinsic to our identities and to the groups to which we belong. Worse, when our identity-based beliefs and actions are harmful, it is emotionally difficult for us to let them go, to admit that we were wrong, and to accept that our false ideas may have hurt others. We all want to think of ourselves as good people. With identity-based sunk costs, the change often has to come from the outside. Instead of waiting for people caught up in destructive beliefs to change on their own, those of us who are not personally invested in those beliefs can support policies that end dangerous and unjust practices.

One common identity-based sunk cost is “We’ve always done it this way”: People who have suffered through unjust systems have a vested interest in perpetuating them, because otherwise their past suffering would be meaningless. For example, every year fraternity hazing lands young men in the hospital (usually due to alcohol poisoning, but also exposure and frostbite, as well as injuries from beatings). They also suffer psychologically, because they have been betrayed and humiliated by people they thought were their friends. Hazing has caused the deaths of at least fifty young men since 2000. In response, forty-four states have passed laws prohibiting hazing.

Similarly, medical residents were once required to work as much as one hundred hours per week. There is no medical justification for such long hours; in fact sleep deprivation is unhealthy for the residents and dangerous for their patients. In addition, the brutal hours used to deter too many smart and dedicated people from becoming doctors, perhaps because they were older, had family responsibilities, or simply were not interested in undergoing pointless misery. To put a stop to this exploitation of new doctors, in 2003 the accrediting organization for medical residents imposed an eighty-hour limit on the work week for residents.

The most pernicious identity-based sunk cost of all is the good intentions of misguided people. Take, for example, the satanic panic. In the 1980s, therapists and prosecutors, seeing themselves as courageous defenders of vulnerable children, became convinced that there was a vast conspiracy to perpetrate satanic ritual abuse in families, schools, and day care centers. Thousands of innocent people were prosecuted and scores were convicted (so far there have been sixty exonerations for convictions related to the satanic panic; some victims of the panic spent decades in prison). In addition, thousands of children were traumatized by therapists’ and prosecutors’ interrogations, which left them feeling they had been horribly abused by people they loved and trusted. The prosecutions eventually ended, in part because in 1994 the National Center on Child Abuse and Neglect studied 12,000 accusations of satanic ritual abuse and reported that they were unable to substantiate a single case.

All of the above destructive practices have had fervent adherents who were convinced they were right.⁴ This shouldn’t surprise us. Imagine how painful it would be to confront one’s own role in unjust imprisonments, senseless suffering, and needless death. But, as John Kerry once asked about the Vietnam War, “How do you ask a man to be the last man to die for a mistake?” At some point the rest of us have to step in and put a stop to injustice.

The Case Against “I Told You So”

There is a final way that we can help each other resist the sunk cost fallacy. Think back to a time you changed your mind about something. If you’re like me, your feelings about your prior beliefs fall somewhere between mild chagrin and deep shame. It is normal to prefer that other people not lord it over us that we were wrong in the past.

This is even more the case with the contentious political issues that are polarizing us these days. It is difficult enough for people to let go of beliefs that are bound up in their identities. When we ridicule people with “I told you so,” we place an obstacle in their path toward our way of thinking. If we want people to change their minds, we have to make it easier for them, which means no rubbing anyone’s nose in it, no scolding, no self-satisfied editorials, no finger-pointing, not even any lighthearted ribbing. Besides, we’re better than this. I mean, we’re not Nelson.

Yes, “I told you so” is tempting. When we’re angry about terrible things people believe and do, it is pleasurable to imagine getting back at them, even if only by reminding them of the error of their ways. But we need to think about what we truly want. Revenge? Or for things to improve? Because often we can’t have both of these at once.

On this point, here’s a final story. Between 1948 and 1989, the Communist regime in Czechoslovakia killed hundreds, forced thousands into exile, and imprisoned hundreds of thousands (source). The Communists didn’t allow people to practice their religions, to choose their own careers, or to enjoy the rights of free speech and a free press. After the Velvet Revolution overthrew Communism, Czechoslovakia’s first president, Václav Havel, made a heroic and extraordinary choice: Instead of pursuing revenge or condoning acts of vigilante violence against former Communist officials, he led Czechoslovakia in setting up an Office for Documentation and Prosecution of the Crimes of Communism, which “operate[d] on the principle that there is no collective guilt attached to all former Communists, but that ‘specific people committed specific crimes’” (source).

Václav Havel outside the cell in which he was a political prisoner. Photo by Tomki Němec. You can see more of Němec’s powerful photos of Havel here.

Havel made the right choice for his country. Czechia and Slovakia are now prosperous countries that are free from civil war, political violence, and cycles of revenge. After his country had undergone so much suffering and oppression, Havel didn’t say “I told you so.” He led people away from revenge and toward the future. He pursued accountability for those who had committed crimes—but he also encouraged forgetting and forgiveness for everyone else. Surely we, with our lesser challenges, can do the same.

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How about you, readers? Have you ever been stuck in sunk cost thinking? What helped you decide to give up and try something else? Please share your thoughts in the comments!

The Tidbit

This scene from Frasier may not be a farce, but it nonetheless ranks among the funniest few minutes ever to appear on TV. At the start, Niles sits contentedly on the sofa, and somehow mere minutes later he has demolished Frasier’s living room:

1. Our very favorite example of a farce is the Ski Lodge episode of Frasier, which you can read about here.

2. The entry on IMDb for This Is Spinal Tap is the only one whose rating scale goes up to eleven. Cute, right?

3. The source for the quote and most of the information in this section is this terrific podcast interview with Tate Twinam, an economics professor at William and Mary. Some of the details also come from conversations I’ve had with two friends who live in Neuchâtel.

4. I have personal experience with this. I once pointed out to a group of grad school friends that there was no corroborating physical evidence of abuse in any of these cases, and that the claims about human sacrifice, blood-drinking, and cannibalism were baroque and highly unlikely. One woman retorted, self-righteously and accusingly, “Well, you think what you want, but I choose to believe the women and children!”