The Sunk Cost Fallacy - An Obstacle To A More Fulfilling Life? [#29]

Have you ever paid for a movie and sat through it even though, after some time, you felt like you did not like it?

That is an example of the Sunk Cost Fallacy - a mental bias that we all fall victim to from time to time.

A sunk cost here is a past expense (e.g., time, money, effort, energy, …) that cannot be recovered.

In the example above, if we were 100% rational, we would leave that movie because it sucks, but since we have already invested money and time, we are likely to keep watching.

This is the sunk cost fallacy in action: the tendency to follow through with something that we’ve already invested in (be it time, money, effort, or emotional energy).

Once you learn this concept, you see it everywhere:

• wearing something that you bought but might be a bit too big
• finishing a meal you don’t like but paid for
• a career that doesn’t fulfill you anymore, but you keep going anyway
• romantic partners that might not be the best fit anymore, but you stick around because of the time already invested in the relationship

At an individual level, this behaviour might cause some harm or frustration, but on a civilizational level, it becomes a big obstacle to a better future.

I remember experiencing sunk cost fallacy after my master's degree. I studied marketing and, next to it, learned about how the world and the underlying economic system work. There I was with a marketing degree in my pocket, but with the knowledge of how marketing drives unnecessary purchases that have a negative ecological impact on the planet.

After some time in crisis, I figured I could use the knowledge for the betterment of companies and came to work in social impact. A different trajectory of a career.

So it is possible to change despite the sunk cost fallacy. Here are some examples with exercises to examine in your own life if you are affected by the fallacy. And nudges to improve your life to be more meaningful and joyful amidst the changes that are happening around us.

Identity

How do you introduce yourself to others? That is your identity and the story that organizes your life.

With the AI taking over jobs and the fossil-fuel carbon pulse likely peaking, your identity might shift in the future.

Based on what you know today, will you have the same identity in 5 or in 10 years?

Challenge your identity.

Write down what you base your identity on, what roles you hold and start thinking about how much of it still makes sense. Then, just like in business, write off the parts that don’t make sense anymore. And start to look for alternatives.

One alternative I am proposing in this newsletter is the role of “regenerator” or “changemaker”. Someone who envisions a better future and starts to act to make it happen, no matter how small the steps. I guess that identity will not be outdated until we live in utopia. ;-)

Built environment

We have sunk billions into the infrastructure we use today: airports, streets, oil and gas pipelines, and other fossil fuel-based transport.

We know today that fossil fuels will run out (next to the damaging impact their usage has on the climate). If we were rational, we would change course, but we are not really.

What are you investing in right now? May it be in your build environment or may it be money in your bank account.

Are these investments serving the future that's likely coming?

Household

Our mortgages, neighbourhood or built environment are other big sunk costs. They tend to keep us in place when it might be smarter to change places.

Based on what you know today (e.g. climate change, supply chain fragility or geopolitical conflict), does it make sense to stay or to relocate?

Community

Then there is the identity of our in-groups. Our political party or other tribes we are part of.

Many people keep defending the ideas of their group, even though they might be outdated. They have invested too much time in defending them, so change is hard.

What positions do you keep defending even though deep down you know they are false? Which of them can you let go?

Narratives

For years, we have been fed the story that progress equals more: more money, more stuff, more anything. Powerful institutions and money interests keep pushing the story.

Most of the storytellers of today are economists or technologist that are energy blind.

This story affects our idea of status. Many people just “keep up with the Johnses”, meaning they upgrade cars or other status symbols just to keep up with the people around them, because it’s what they learned is the right thing to do in our society.

Stopping this behaviour alone would probably cut energy and material throughput by a quarter to a half in developed countries.

Ask yourself: what are the real needs that you have? What are the wants that are programmed into you by your surroundings or marketing?

We are often more socially-constrained than physically-constrained when it comes to our behaviour.

“People don’t need enormous cars; they need admiration and respect.

They don’t need a constant stream of new clothes; they need to feel that others consider them to be attractive, and they need excitement and variety and beauty.

People don’t need electronic entertainment; they need something interesting to occupy their minds and emotions. And so forth.

Trying to fill real but nonmaterial needs - for identity, community, self-esteem, challenge, love, joy - with material things is to set up an unquenchable appetite for false solutions to never-satisfied longings.

A society that allows itself to admit and articulate its nonmaterial human needs, and to find nonmaterial ways to satisfy them, would require much lower material and energy throughputs and would provide much higher levels of human fulfillment.”

― Donella H. Meadows

It is on us to tell new “status stories”.

It is not about the people in the neighbourhood who have the most money; it is the neighbour who plants trees that we should value.

It is not the richest person in the world that's admirable, but the one who has the most fulfilling life with the least amount of money.

We should highlight these stories.

So if you feel that somewhere inside of you, you are attached to sunk costs; may it be in your identity, built environment, household, community or civilizational narrative, acknowledge it.

Take a deep breath, say thank you for how these sunk costs have served you, and then change course.

Hope you are well!

Happy regeneration,

Jonas