What is the sunk cost fallacy and why do we fall victim to it at work?
It’s extremely difficult to give up on a project you’ve put your heart and soul into. You may keep telling yourself that your hard work will pay off or that the money you spent on it will be worth it in the long run. So instead of cutting your losses, you keep putting more time, effort and money into it – a psychological phenomenon known as the sunk cost fallacy.
The sunk cost effect, or sunk cost effect, occurs when you decide to do something simply because you invested your resources into it in the past. Instead of focusing on the present or future costs and benefits – which would be the rational, optimal choice – you focus on what you’ve already spent and make decisions that no longer work for you.
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“The sunk cost fallacy is a cognitive bias. Essentially, it’s the idea of ’throwing good money after bad’ – we get stuck with the idea that a change in course means the sunk cost has been wasted,” says Dr. Claire Vowell, founder of Corporate Psychologist.
While this heuristic can crop up anywhere—for example, it can explain why you feel compelled to finish a book you don’t like because you started it—it can also affect your career.
“It’s common in the workplace for people to feel like they’ve invested a lot in their careers and that a change would be a waste of time, money and energy,” says Vowell. “I see this a lot with high achievers who have followed traditional career paths that required a lot of time, effort and commitment. For example, in law or finance.”
What’s frustrating is that the longer we stay trapped in the sunk cost mindset, the harder it can be to break free. “That’s because we keep investing and costs keep rising,” says Vowell.
Effects of the sunk cost fallacy in the workplace
One of the biggest negative consequences for employees is stress and burnout. You may feel emotionally attached to a job you no longer enjoy simply because you’ve done it for years. But if you’re in a job you don’t like, the added burden of trying to be successful or appear engaged can cause tremendous stress and contribute to poor mental health.
“If employers continue to invest in unsuccessful projects, it can demoralize employees, leading to lower motivation and higher turnover rates,” adds Vowell.
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Financial difficulties can also result, especially if an employer invests more and more money in a project that is not financially viable because the idea of giving it up seems worse than starting over with a new approach.
Dr Carolyne Keenana registered psychologist, adds: “This phenomenon can often come into play with advertising strategies or business ideas. Once we have invested time in something, it can be hard to let it go, even if it doesn’t bring us the results we want.”
“It usually manifests itself as loss aversion or a bias against the plan originally set,” she adds. “It’s the feeling that further investment by changing the approach would be a waste of resources. There may also be a personal or emotional attachment to a project or decision.”
How to know when to leave
“First, take time to think about the sunk cost fallacy and whether it resonates with you. It’s a common bias and people often fall into that thinking trap. We don’t want to introduce self-criticism,” says Vowell.
Signs of the sunk cost fallacy may include repeated poor results despite your best efforts. The situation may also affect your well-being or confidence – especially if you feel increasingly uncertain about a project or your career path. Finally, if you can’t think of any other reason to continue with a career or project other than the time or money you’ve invested so far, it may be time to reevaluate your situation.
However, it can be difficult to know whether to stick with something or give up. For example, it’s normal to go through a rough patch in your career or feel like you’re stuck in a dead end. However, that doesn’t mean you should definitely give up – it might just be a hurdle to overcome.
Vowell advises thinking about what you want from your job and considering your own values and expectations of success. “I work with my clients to understand the influences and expectations that led to a particular career choice,” she says.
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“Sometimes a particular career path is set in adolescence and may have been heavily influenced by parents or teachers and their expectations,” she adds.
“That doesn’t necessarily mean it’s the right choice for us once we’re in our twenties or thirties or beyond. If your current role doesn’t align with your values, what could bring you closer to them?”
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