Falling costs mistake: what it is and how it makes problems worse

Errors are cognitive biases by which reality is disfigured and veiled, giving an appearance of plausibility to what is essentially uncertain or directly false. Almost everyone has been involved in it and / or has been “victimized” by someone, at least at some point in their life.

Most mistakes deceive others, but there are also some that only distort the truth of what you are telling them, to the point that they reduce their ability to make the right decisions in a problematic situation.

In this article, we will abound in the error of cost swallowed up or Concorde (In homage to a plane created by the French government and which caused enormous losses for this country), which has been the subject of much research on how it can condition the fate of those who fall into its networks.

    Basics of Sunk Cost Error

    The swallowed-up cost error it is perhaps one of the most common cognitive biases in the life of any human being. We also know that, on several occasions, it has very serious consequences for those who undergo it (as well as for their immediate environment). The convergence between its frequency and its potential damage makes it an object of great interest in psychology, logic and even economics. And it is that, although we would like to believe otherwise, our decisions are sometimes far from being rational and sensible.

    It is understood as a sunk cost all this investment which, by objective circumstances, seems absolutely irrecoverable.. Such an investment can be understood in temporary terms, as a large expense or as the satisfaction of what was once perceived as a basic need for happiness and / or self-actualization. Thus, this concept includes any relevant past effort for which any expectation of income, amortization or compensation has been diluted.

    We also know that the esteem you have for what you have invested in (it can be a work project, a relationship, etc.) is directly proportional to the personal effort you need, in terms of affect. emotional or expectation of results. And in turn, it is well known that the more affection you have for something, the harder it is to let go or abandon efforts to stay afloat. Everything that is described here is the basis on which the sunk cost error rests.

    The main problem with this error lies in the decision-making processes in which this person or project is involved, to which our past, sometimes titanic and constant efforts are attributed. Although there is no option to recoup the investment they involved, we continue to keep the past in mind when it comes to taking alternatives for change today; because we generally refuse to lose all that once cost us, or settle the expectations that once motivated us to undertake what we would leave today.

    With the incorporation of the loss, located in the past and totally irrecoverable, the decision-making process is conditioned by elements external to rationality (understood as the weighted analysis of the potential benefits and drawbacks both in the short and in the long term). ). ). That way, we wouldn’t choose options aimed at getting positive things (a better job, a relationship that brings us more happiness, or just stopping an economic bleeding), but the ultimate goal will be to avoid something for which it is certainly too late.

    The consequences of this mistake can be truly dramatic and often lead to personal failures and economic setbacks. In fact, it is a concept that the economy has saved to understand what lies dormant after the loss of assets of its customers. Below, we’ll take a look at how this can get people to take action and why it usually leads to situations that only make the problem worse.

    What is this error and how does it work

    In short, the sunk cost error is a cognitive bias that consists of valuing a relevant personal investment from the past, and irrecoverable by all, to keep a project afloat the expectations are very daunting. In this way, the effort would be maintained in the hope of recovering the delivered (money, time, etc.) without fixing it is really something that will never come back. In short, a refusal to give in to a threatening reality because of the fear that pushes us to assume the loss, and which can end up making the situation worse.

    Most people have experienced the difficulty of giving up, of giving up something in their own skin, even though we are aware that it is a lost cause. It is, in fact, a harmful way of insisting; which nourishes the hope that a stroke of luck (or knocking on the key) will change the situation diametrically and we can straighten our course in an ocean where the waves threaten to plunge us into their unfathomable depths.

    The sunken cost error is a bias that prevents us from detaching ourselves from the past through the emotional affection we forge with it, even if it does not resonate for the present. It is often a matter of keeping all of our efforts towards something that no longer brings us happiness. It is because we were victims of an insoluble dissonance: “I invested a lot, all that I had, in this … I cannot give up now, because I have not brought anything back yet. Well.”

    Some mental health issues form around this error, particularly pathological gambling. In these cases, the behaviors that are carried out (bets, games on a slot machine, etc.) generate losses and interpersonal conflicts of an immeasurable magnitude, but the affected person keeps the habit because he has already “lost too much. And you may not allow yourself to “give up your efforts” without having recouped at least some of your investment. obviously the consequence is that the problem worsens more and more, Deploy what is called “hunting” (asking for money from acquaintances in order to recover from losses).

    In addition, it has been described that this error can also affect when the one making the effort is an individual we admire or want. So, if someone we hold in high regard asks us for something and we don’t want to, most of us will tend to give in and end up doing it (in exchange for someone’s investment. ‘another, not ours). It is a family experience for a very large percentage of the general population, and it involves the extension of this sunken cost error to social dimensions.

      some examples

      In order to clarify how this error or this bias is expressed, we will examine some concrete examples of the different forms it can take depending on what was previously mentioned.

      1. A ruined project

      Philippe was young, and as such burnt with the desire to plow with his own hands a future in which to live fully. For many years he combined a job (on weekends) with his training, saving as much as possible to start his own business one day. When he had just laid his hand on this diploma he was having such a hard time obtaining, he was already fantasizing about the life he had always wanted for himself, erecting castles in the air on what would be his days from there.

      Unfortunately, Felipe still didn’t know that despite so much excitement, his project was going to be a failure which would lead him to lose everything he had saved during his youth. More than a year had passed, and the losses of his restaurant were increasing enormously, but the situation could not change. Despite this, and since he had invested too much in the opening, he decided to ask people he trusted for money in the hopes of returning in the future.

      2. Where are we going?

      Vanessa and Miguel had been together for ten years, and during that time they had been through all kinds of situations. Lying on a cold bed, enjoying the darkness that flowed from the ceiling of the room, she meditated on her life by his side. The first years were perhaps the most difficult, as her family did not accept the man they chose as their partner and he fought against all odds. stay by his side in the worst possible scenario. Despite this, he remembers this period as an adventure in which he learned a lot about what life was really like.

      The sound of the crickets reached my ears, that night which seemed eternal to me. And this is it I didn’t want him anymore, I hadn’t felt the same for at least five years. He hopes the morning light will take with it the strength he needs to articulate the words that will lead them to the end of the common path. It didn’t make him happy anymore, but he refused to believe that a story like his would die in such a mundane and sad way. They had spent so much time next to each other … there was a jumble of doubts. One more night, like so many before.

        3. A frowned upon cake

        It was a Sunday afternoon. Like other times in the past, Grandma Carlota brought for dessert what was once a fantastic carrot cake. Not in vain, she was a woman who had become very famous for a recipe whose birth dates back to a time that only she could remember. And it is that the years began to accumulate in his snowy hair, and he unfortunately entered the winter of his life. But by then, in the light of a dying autumn afternoon, the family ritual was about to begin. It was the only important thing.

        The smile on his face was as it always had been, as was the theatrical pose with which he showed his exalted creation. On that day, however, what everyone had been waiting for with disproportionate anticipation became the most unexpected of horrors: it was not grandma’s cake, but an unhealthy-looking, unhealthy-looking mass that emitted a strange smell which immediately caused the dog to escape amidst dismal. sobs of panic.

        There was a silence. They all looked at each other first, and Grandma right after, with her smile on her face. The usual smile. “What a great pint!” lying to someone somewhere. With trembling hands and a heavy heart, fearing it might be “toxic”, they all ate the usual ration. And it is that the woman, who always gave everything and had risen to prepare food with affection, deserved it and a lot.

        Bibliographical references:

        • Krämer, A. (2017). Demystify the “cost overrun error”: It is reasonable to factor fixed costs into decision-making. Journal of Research in Marketing, 7, 510-517.
        • Friedman, D., Pommerenke, K., Lukose, R., Milam, G., and Huberman, B. (2007). In search of the sunk cost error. Experimental economics. 10. 79-104.

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