A well-documented bias
The sunk cost fallacy is continuing an action because you have already invested time, money or energy in it, when only future costs and benefits should matter. Arkes and Blumer (1985) showed it in a now-classic experiment: theatergoers who paid full price for a season ticket attended more plays than those who got a randomly assigned discount, despite equal interest in the plays.
Three mechanisms at work
Loss aversion
According to prospect theory (Kahneman & Tversky, 1979), losses weigh psychologically about twice as much as equivalent gains (Tversky & Kahneman, 1991). Abandoning a project means acknowledging a loss (of money, time, prestige): we then prefer to take another risk.
Cognitive dissonance
Admitting a project has failed clashes with the self-image of a competent decision-maker (Festinger, 1957). To reduce the discomfort, we convince ourselves that "success is at the end of the tunnel."
Escalation of commitment
Staw (1976) showed that decision-makers who feel responsible for a bad choice invest more in the same direction rather than question it.
Neutralizing mechanisms
- Stop criteria defined at kickoff ("kill switch"): a budget ceiling, a deadline, a minimum measurable result. Decided in cold blood, before you are emotionally invested.
- Regular decision points, where the question is: "Knowing what I know today, would I launch this project?"
- Independent review by people who are not emotionally involved.
- A pre-mortem upfront, to identify in advance what could make the project fail: see The Pre-Mortem Technique.
A useful clarification: ignoring past costs does not mean giving up at the first difficulty. It means deciding based on what remains to be gained and spent.
In FluidOps
Write down your stop criteria in your project space, then compare them with the facts: the analytics show progress, team workload and blocked tasks, and the Gantt shows deadline gaps. Deciding with numbers in front of you reduces the share of emotion.
Sources
- Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35(1), 124-140. doi:10.1016/0749-5978(85)90049-4
- Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291. doi:10.2307/1914185
- Tversky, A., & Kahneman, D. (1991). Loss aversion in riskless choice: A reference-dependent model. The Quarterly Journal of Economics, 106(4), 1039-1061. doi:10.2307/2937956
- Staw, B. M. (1976). Knee-deep in the big muddy: A study of escalating commitment to a chosen course of action. Organizational Behavior and Human Performance, 16(1), 27-44. doi:10.1016/0030-5073(76)90005-2
- Festinger, L. (1957). A Theory of Cognitive Dissonance. Stanford University Press. sup.org