Tag Archives: Social science

Ignore Sunk Costs: List of Biases in Judgment and Decision-Making, Part 1

It can be really fun to write a series of posts on a particular topic. By my count, I’ve done this at least seven times so far. Today, I’d like to start what I hope will be an oft-read series on biases in judgment and decision-making (to some, cognitive biases). Because of my background in psychology and my interest in decision-making, I thought it would be wise to share with you the things that I’ve learned either through the classes I’ve taken (the classes I’ve taught!) or the research I’ve read. With each bias, my goal is to explain the bias and offer some possible avenues for not falling into the trap of the bias. Today, we start with one of the big ones: the sunk cost fallacy.

Sunk costs are those costs that have already happened and can’t be recovered. For instance, let’s say you buy an apple and bite into it. The money you used to buy that apple can’t be recovered — it’s a sunk cost. Now let’s say the apple doesn’t taste very good (maybe it’s inorganic). You might say, ‘well, I’ve already paid for the apple, so I might as well eat it.’ NO! That’s the sunk cost fallacy! Just because you’ve already bought the apple and paid for it, doesn’t mean you have to eat it. If it tastes bad, by golly, don’t eat it!

That’s a rather basic example of the sunk cost fallacy, so let’s look at one that might seem a bit more applicable. Sunk costs often come into the fray when they’re contrasted with future costs. Let’s say you’ve bought a subscription to a newspaper or a magazine. Because of your subscription, you get a discount when it’s time to renew your subscription. Now, let’s say that in that year of your subscription, you discovered that there was another newspaper/magazine that you preferred (maybe The Economist?). When it comes time to renew your subscription, you look at the two options to either subscribe to The Economist or continuing with your other subscription. You find out that the discounted price for your current newspaper/magazine will be the same price as The Economist. You say to yourself, “well, I’ve already subscribed to this newspaper and spent so much money on it, so I might as well keep subscribing to it.” NO! That’s the sunk cost fallacy. The money you’ve spent on the subscription for the other newspaper/magazine can’t be recovered! You can’t get it back. As a result, it shouldn’t affect the decision you make now about whether to choose it or The Economist

There’s one more quick example that I want to highlight: war. From a paper by a professor at Princeton:

The United States has invested much in attempting to achieve its objectives. In addition to the many millions of dollars that have been spent, many thousands of lives have been lost, and an even greater number of lives have been irreparably damaged. If the United States withdraws from Vietnam without achieving its objectives, then all of these undeniably significant sacrifices would be wasted. [Emphasis added]

Pay particular attention to that last sentence. That is the sunk cost fallacy in action.

Ways for Avoiding the Sunk Cost Fallacy

So, now that we’ve looked at the sunk cost fallacy, how can we avoid it? Well, the first step in avoiding the sunk cost fallacy is recognizing it. Hopefully, the above examples have given you an idea of how this bias can arise. There are a two other ways I want to highlight that you can use to avoid this trap.

1) What am I assuming?

The crux of the sunk cost fallacy is based on an assumption. That is, you’re assuming that because you’ve already spent money on X, that you should keep spending money on X. If you look at what it is that you’re assuming about a situation, you just might find that you’re about to step into the sunk cost trap.

2) Are there alternatives?

Related to the above example is alternatives. You’re not bound to a decision because you’ve made a similar decision in the past. Just because you bought the ticket to go to the movie, if another activity presents itself as more enticing, you’re allowed to choose that one instead. In fact, if when you sit down to watch the movie, it’s bad, you’re allowed to get up and walk out. Don’t fall into the sunk cost trap thinking that you have to stay because you paid for it. There are any number of things you could be doing: going for a walk, calling an old friend, etc.

What if Predicting the Future is a Skill?

In the shower this morning, I was thinking about some old research. Old since it’s almost 10 years old — so not “old,” per se. Anyway, I was thinking about those experiments where a person’s body knew before a startling picture was about to appear before them. In layman’s terms — predicting the future. Then I thought (because all great ideas start in the shower, right?) what if predicting the future is a skill… and we just have to develop it!

I’ve written before about the evidence for predicting the future (precognition) — there’s lots of evidence to support that this phenomenon exists. There’s also lots of research that talks about — at birth — we have the capacity to speak every language. I should say, we have the capacity to develop the ability to speak every language. It has to do with connectivity in our brain, phonemes, and the like. So, isn’t it possible that there are also neural pathways that could be developed to improve our ability to predict the future?

And if this were the case, isn’t it possible that we can also develop this skill later in life. There are infinite examples of people learning new languages after the so called “do or die” time when they’re babies, so isn’t it possible that people could then develop the ability to predict the future later in life, too?

I don’t have any definitive answers to the questions I’m asking, but it’s certainly a thought worth entertaining this Friday morning.

If You’re a Senior Executive and You’re Not on Twitter, You’re Doing It Wrong

I’ve seen a number of articles in the past 12 months (here’s one, and another, and another still) that discuss CEO’s and social media. Of the three I pointed to in the previous sentence, two are for and one is against. On the whole, I think the majority of what I’ve read in the popular press is that CEOs should be on social media. There are a number of good reasons (know your market, humanizing your brand, appearance of accessibility, etc.), but I learned of an externality last week.

When I was at the Appreciative Inquiry (AI) event, I was with a number of staff at George Mason University. Our aim at this event was to share positive things about Mason, which is one of the purposes of AI. During this sharing, it was possible to overhear conversations of other groups around the room (especially when there was a pause/lull in my group’s discussion). In a couple of these silences, I overheard groups talking about the President of George Mason University — Angel Cabrera — who is known for, among other things, being on Twitter.

In fact, a couple of these people who were talking about it, mentioned that this was the reason that they joined Twitter — just so that they could follow the President! And this isn’t the only time that I’ve heard of faculty/staff joining Twitter just to see what the President was saying. While these pockets of people saying this may not be a representative sample, it certainly seems like it might be the beginning of a trend, or at least something that’s worth noticing.

In a couple of the articles I mentioned in the opening paragraph, the authors specifically point to social media being a way for CEOs to connect with their employees. After hearing about these folks at Mason who joined Twitter just for President Cabrera, I can see other benefits, too. Once these folks are on Twitter, they may be more likely to follow other conversations and continue their learning/development. But more than that — for the company/brand/organization/school, these employees will be showing potential customers/employees another window into the workings of the company/organization. That may have been a confusing sentence. By being on Twitter, these employees could offer a window of what it’s like on the inside.

So, while there are obvious benefits of CEOs partaking in social media, I think it’s important to point out some of the externalities that result from CEOs being on Twitter  — namely — their employees joining Twitter. As you’ll notice in the title of this post, I would argue that senior executives should join Twitter, so not just the CEO (or President, in the case of George Mason University). In fact, at George Mason University, you’ll find that President Cabrera isn’t the only senior executive on Twitter. Mason’s Provost (Peter Stearns) is on Twitter, the Dean of the College of Humanities and Social Sciences (Jack Senser) is on Twitter, the Dean of the College of Education and Human Development is on Twitter (Mark Ginsberg), etc.

So — if you’re a senior executive, make your way to social media — now! And for all the employees out there, head on over to social media to check and see if your company’s/organization’s senior executives are on Twitter… you never know.