Tag Archives: sunk cost fallacy

Springtime sort-outs and sunk costs

Critical Thinking, , , ,

The misconception: You make rational decisions based on the future value of objects, investments, and experiences.
The truth: Your decisions are tainted by the emotional investments you accumulate, and the more you invest in something, the harder it becomes to abandon it.

–David McRaney
You Can Beat Your Brain

kelly-sikkema-216021 About an hour ago someone I’d never met before knocked at my front door. I gave him a pair of headphones, he said thank you, and the transaction was done. I don’t imagine that we’ll ever meet again.

We both benefited, me and the stranger: he gained a working pair of good quality hi-fi headphones, and I was rid of an object that I really didn’t need to own. This wasn’t as random an act as I’ve made it sound, and I haven’t started giving away everything I own in a fit of asceticism or altruism… it’s just that there are some possessions that I really don’t need to hang on to, and freecycle.org exists in order to rehome those things that I don’t have the energy or inclination to sell.

A familiar story?
Here’s the backstory: a long time ago—probably over ten years ago—I bought a pair of headphones. At the time I was spending a lot of time listening to music through some tiny in-the-ear earphones, and it seemed sensible to treat myself for my birthday or whatever to a reasonably good-quality pair of hi-fi headphones. So I did. The sound quality was great, but however I adjusted them they were never really very comfortable to wear and after a few weeks of trying I pretty much gave up using them.

Every now and then I’d rediscover these headphones, wherever I’d stashed them, and try them again and then realise why I’d stopped using them. It got to the point where I’d accidentally find them, glare at them because they reminded of how I’d invested a reasonable amount of money by purchasing them, then ignore them. One more thing that I owned, but never used any more. One more thing that I might as well not own, but could not get rid of because (once again) I’d been taken in by the so-called ‘sunk costs’ fallacy.

sennheiser_padsActually, about six months ago I re-discovered these headphones, found that the material on the ear pads had perished, and bought some replacement ear pads over the internet. Thus investing even more money in this thing that I owned, but never used. I thought I was being rational, after all – what good were the headphones if the pads were falling to bits? Buying new pads would make the headphones great again! But that was the fallacy at work. A more objective view would have been that I was ‘throwing good money after bad’, expressed very clearly as ‘the truth’ in the quote from David McRaney’s book at the top of this article.

Anyway, conditions have changed and I think I’ve now made a better decision by freecycling the headphones rather than putting them back in a box under my bed to be ignored for another six months. There’s always going to be the nagging concern in the back of my mind that I might just need those at some future point, and I’ll regret having got rid of them. But I’ve felt that often enough before, and I seem to have survived.

The ‘sunk costs’ fallacy
The headphones story is just one aspect of a greater springtime sort-out that I’ve been engaged in over the Easter holiday. And turning up unused item after unused item I’ve been realising that I’ve been reluctant to let go mainly due to the sunk costs fallacy. This fallacy is behind a huge range of dysfunctional human behaviour, from the relatively harmless (eating a whole bag of crisps, even though you’re not very hungry, because you paid for a whole bag of crisps) to the very harmful (a head of state starting a war against another nation, even though the war will not improve things under  current conditions, because you had previously committed your country to that course of action based on the conditions back then).

967186270_4087dae835_bIn economics a ‘sunk cost’ is a cost that has been put into a project, and that cannot be recovered. In psychology the same term, by analogy, applies to emotional investments that have already been made: things that we cannot forget or un-do. The fallacy part comes in when we assume that we’re operating rationally (by not allowing the sunk costs to disproportionately influence our decision making) while actually operating irrationally (because of the strong emotional investment we have already made).

Apparently this fallacy is a consequence of the way that human minds work; the prospect of losses is a more powerful motivator on our behaviour than the promise of gains—which is also known as ‘loss aversion’—which means that we tend not to treat losses and gains in an even-handed way. In David McRaney’s highly readable book about cognitive biases and logical fallacies, ‘You can beat your brain‘ (US title: ‘You are now less dumb‘), he explains the enormous success of the Farmville game on social media in terms of the sunk costs fallacy. You can read this chapter of the book on McRaney’s own website (link).

Love people. Use things.
leather_bookmarksBefore I finish I’ll tell you about one more example from my springtime sort-out, one where the monetary value wasn’t a factor. And I’m not talking about the box of sixty leather bookmarks, although that was snapped up the same day by an enthusiastic freecycler whose mother apparently ‘loves all things books!’

For the past 25 years I’ve been hanging on to an A5-sized spiral-bound drawing pad, full of black pen landscape drawings that I’d done when I was about 15 years old. It was so long ago that I can’t quite remember what it was that made me start filling this book – I liked drawing and wanted to get better at it, I had time to spare during the school holidays. Anyway, the thing is that I’ve been hanging on to this pad for a quarter of a century: whenever I moved house, and that’s fairly often, the pad moved with me. I couldn’t get rid of this thing that was the only tangible reminder of the hundreds of hours I’d spent drawing these pictures in my mid-teens.

Looking through the pad of drawings a few days ago, with slightly more objective eyes, I realised that 90% of the drawings weren’t even original! I’d been working through a tutorial-style book called something like ‘How to draw landscapes‘. So I’ve removed the three pictures from the back of the pad that were my own creations, and recycled the rest. In fact I’ve gone one better and I’ve scanned these three pictures and they now live in ‘the cloud’ instead of my sock drawer.

Soulbury_cottagesAnd it’s not even the pictures that have value for me, it is the meaning they hold for me and others, and this meaning doesn’t depend on the continued physical existence of the object. For example, one of the drawings was of the row of cottages where my grandparents lived for most of their lives (shown in the picture here). I know that my grandfather, in his 90s now, will find this fascinating, it’ll be something we can talk about. We can laugh together about the sheds where he accumulated about five duplicates of every kind of gardening tool – that was quite an effort when he eventually moved out and down-sized, to help him let go of 60 years worth of well-hoarded stuff.

Let it go, let it go…
To conclude then, I’m not going to tell you that you might as well get rid of that material clutter in your life – you probably already know that! I’m not about to give you any advice about how to let go of the stuff that you’re needlessly hoarding either, there are enough minimalism blogs and progs which can help you with that. My point is this: remember the sunk costs fallacy, which lies behind your irrational reluctance to get rid of stuff that is of no value to you. And in remembering it, you’re no longer beholden to its underhand influence. If you can remember this with the more trivial issues of day-to-day living, there’s hope that you might also avoid the unethical actions that we are driven towards by loss aversion.

Looking to the near future, it will soon enough be time for the great summer sort-out, which means tackling the dreaded shed. Wish me luck.

The Trouble with Revisionism

Critical Thinking, History, Psychology, Religion, , ,

Almost everything we do is in some way an attempt to improve on what went before. Even tidying up a room involves what we see as an improvement on its previous state. When we consider traditions of human thought and activity, too, each new development of a tradition tries to address a new condition of some kind and thus also remedy a defect: for example, the Reformation was a response to dogmatic limitations and perceived abuses in the Catholic church, and new artistic movements respond to what they see as the aesthetic limitations of the previous movements that inspired them.

In many ways, then, its not surprising that both individuals and groups gradually evolve new ways of doing things in response to past tradition or custom. What creates a problem, though, is when we essentialise that tradition and try to appropriate its whole moral weight to justify our current approach: believing that we have found the ultimately right solution, the true answer, or the ultimately correct interpretation of that tradition. When we do that, we’re not just contributing to a new development that we acknowledge to be different from what went before, but also imposing that development on the past. In effect, we’re projecting the present onto the past. Revisionism - Executed Yezhov removed from photo of StalinThis is an approach to things for which ‘revisionism’ seems to be a good label, though it’s most typically been used for those who more formally impose their preconceptions on the interpretation of history, such as holocaust deniers. This photo shows such revisionism in action in the Soviet Union: the executed commissar Yezhov removed from a photo featuring Stalin.

In a sense, we’re all revisionists to some degree, since this tendency to appropriate and essentialise the past is wrapped up in common fallacies and cognitive biases that we might all slip into. We’re especially likely to do this when considering our own past, for example underestimating the extent to which our mature experience differs from our youth and projecting the benefit of hindsight onto our judgements in the past. In working on my next book Middle Way Philosophy 4: The Integration of Belief, I’ve been thinking a lot about these cognitive biases around time recently. There are many concerned with the present and the future, or with non-specific times, as well as the past, so I won’t try to discuss them all, but just a couple that focus particularly on the past.

In terms of Critical Thinking, the fallacy of absolutising the past is equivalent to the Irrelevant Appeal to History or Irrelevant Appeal to Tradition. This is when someone assumes that because something was the case in the past that necessarily makes it true or justified now. Simple examples might be “We haven’t admitted women to the club in the hundred years of our existence – we can’t start now! It would undermine everything we stand for!” Or “When we go to the pub we always take turns to pay for a round of drinks. When it’s your round you have to pay – it’s as simple as that.”

A common cognitive bias that works on the same basis is the Sunk Cost Fallacy, which Daniel Kahneman writes about. When we’ve put a lot of time, effort, or money into something, even if it’s not achieving what we hoped, we are very reluctant to let go of it. Companies who have invested money in big projects that turn out to have big cost overruns and diminishing prospects of return will nevertheless often pursue them, sending “good money after bad”. The massively expensive Concorde project in the 1970’s is a classic example of governments also doing this. But as individuals we also have an identifiable tendency to fail to let go of things we’ve invested in: whether it’s houses, relationships, books or business ventures. The Sunk Cost Fallacy involves an absolutisation of what we have done in the past, so that we fail to compare it fairly to new evidence in the present. In effect, we also revise our understanding of the present so that it fits our unexamined assumptions about the value of events in the past.

I think the Sunk Cost Fallacy also figures in revisionist attitudes to religious, philosophical and moral traditions. It’s highly understandable, perhaps, that if you’ve sunk a large portion of your life into the culture, symbolism and social context of a particular religious tradition, for example, but then you encounter a lot of conflicts between the assumptions that dominate that tradition and the conditions that need to be addressed in the present, there is going to be a strong temptation to try to revise that tradition rather than to abandon it. Since that tradition provides a lot of our meaning – our vocabulary and a whole set of ways of symbolising and conceptualising – it’s clear that we cannot just abandon what that tradition means to us. We can acknowledge that, but at the same time I think we need to resist the revisionist impulse that is likely to accompany it. The use and gradual adaptation of meaning from past traditions doesn’t have to be accompanied by claims that we have a new, true, or correct interpretation of that tradition. Instead we should just try to admit that we have a new perspective, influenced by past traditions but basically an attempt to respond to new circumstances.

That, at any rate, is what I have been trying to do with Middle Way Philosophy. I acknowledge my debt to Buddhism, as well as Christianity and various other Western traditions of thought. However, I try not to slip into the claim that I have the correct or true interpretation of any of these traditions, or indeed the true message of their founders. For example, I have a view about the most useful interpretation of the Buddha’s Middle Way – one that I think Buddhists would be wise to adopt to gain the practical benefits of the Buddha’s insights. However, I don’t claim to know what the Buddha ‘really meant’ or to have my finger on ‘true Buddhism’. Instead, all beliefs need to be judged in terms of their practical adequacy to present circumstances.

This approach also accounts for the measure of disagreement I have had with three recent contributors to our podcasts: Stephen Batchelor, Don Cupitt and Mark Vernon. I wouldn’t want to exaggerate that degree of disagreement, as our roads lie together for many miles. and in each case I think that dialogue with the society and exploration of the relationship of their ideas to the Middle Way has been, and may continue to be, fruitful. However, it seems to me on the evidence available that Batchelor, Cupitt and Vernon each want to adopt revisionist views of the Buddha, Jesus and Plato respectively. I’m not saying that any of those revisionist views are necessarily wrong, but only that I think it’s a mistake to rely on a reassessment of a highly ambiguous and debatable past as a starting-point for developing an adequate response to present conditions. In each case, we may find elements of inspiration or insight in the ‘revised’ views – but please let’s try to let go of the belief that ‘what they really meant’ is in any sense a useful thing to try to establish. In the end, this attachment to ‘what they really meant’ seems to be largely an indicator of sunk costs on our part.