Don’t Let Sunk Costs Sink You
You can’t ask a tree to blossom
If it isn’t spring
Don’t leave the house at midnight
And expect the birds to sing
If you’re lookin’ for a reason
You needn’t even try
Sometimes it’s time to let a good thing die
TLDR: Don’t be afraid to give up something you don’t need just because of what it’s cost. Forget what you’ve already lost and maximize for the future.
In my economics class last semester, I learned the concept of sunk costs. I’ve been both subconsciously and consciously applying it to my life since and its applications have impacted me far beyond the classroom.
What Are Sunk Costs?
This is how the Corporate Finance Institute defines it:
A sunk cost is a cost that has already occurred and cannot be recovered by any means. Sunk costs are independent of any event and should not be considered when making investment or project decisions.
Basically, past investments shouldn’t impact your decision — only present and future value.
How It Plays Out in My Life
These aren’t new or revolutionary applications but ones I’ve noticed personally in my life. Who would’ve thought econ would be so philosophical?
- Getting more out of my hobbies — When I started Sapiens, I was hooked. It was a dense read though so when I wasn’t in the mood — having the sense I needed to see through what I’ve started or thinking “I’ve already spent so much time on this book” (sunk cost alert) — I was also not reading anything else, which led to months of not reading. Now I just pick up something else that piques my interest. Simple concept but I’ve realized it’s okay not to finish a book.
- Healthier relationship with food — My appetite being quite small, when I order food, I often get full before I finish. I used to continue to eat till I’m done either 1) absentmindedly or 2) to “get my money’s worth” (sunk cost alert) and by the end, I’d leave feeling awful. Now I just have my meal for as long as I’m finding it enjoyable.
- Room for fulfilling relationships — Regardless of how good it was or for how long, sometimes the value was only for a certain period and sometimes you don’t get a return on your investment. S’all good, learn when it’s time to change course.
- More enjoyable use of my time — I’ve paid for a ticket yet when the time comes, say I’m not feeling well. That money is already gone so it shouldn’t factor into my decision. If I need to stay in and rest, that’s what I should choose. If I want to power through for the good memories, learning opportunity, chance to new people, etc. then that’s what I should choose.
- Meaningful reasons for committing through hard times — The 2nd year of my program is notorious for its brutal volume of work and one of my favourite coping mechanisms was threatening to drop out. But when it came down to it, I knew I didn’t actually want to, nor did I want to do the easier thing which is switching programs. The year+ of my life or tuition spent were already gone; what drove me was that the end goal worth it. The future I could see for myself (opportunities, working in industry, the actually interesting courses I could take in 3rd year, etc.) was more favourable than dropping out and that is the true value I get from committing to the program. (And thank god cause no way I could walk up to my family talkin’ bout sunk costs lol imagine).
I’ve found taking the extra time to think about motivating reasons that are unrelated to the sunk costs has been illuminating and freeing.
Easier Said Than Done
Clearly, it’s not to say that we should give up on first sight of inconvenience or that powering through a rough patch is meaningless. On the contrary, I personally find myself honouring commitments I’ve made to a fault.
The sunk cost fallacy explains this — it’s the human tendency to misvalue opportunity costs and over value sunk costs.
We have a tendency to continue investing in something that isn’t working and/or hasn’t been working in hopes that it will eventually make up for our past losses, even when all signs point to an undesirable outcome. It’s important to shift focus to what really matters — the true value that can be derived in the present and future — and know when to walk away before your debt gets worse.