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This model is a reminder to cut your losses and focus on future opportunities rather than getting pulled down by past decisions.
Qui autem esse poteris, nisi te amor ipse ceperit? Sed quot homines, tot sententiae; Non potes, nisi retexueris illa.
Sit hoc ultimum bonorum, quod nunc a me defenditur; Et quidem Arcesilas tuus, etsi fuit in disserendo pertinacior, tamen noster fuit; Num quid tale Democritus? Sint modo partes vitae beatae. Quae similitudo in genere etiam humano apparet. Contemnit enim disserendi elegantiam, confuse loquitur.
- Ask, ‘does this cost have an impact on what will happen in the future?’
Identify Sunk Co ... Lorem ipsum dolor sit amet, consectetur adipiscing elit. Si enim ita est, vide ne facinus facias, cum mori suadeas. Quaesita enim virtus est, non quae relinqueret naturam, sed quae tueretur. Ergo id est convenienter naturae vivere, a natura discedere. Igitur ne dolorem quidem. Duo Reges: constructio interrete. Non est igitur summum malum dolor. Ergo ita: non posse honeste vivi, nisi honeste vivatur? Uterque enim summo bono fruitur, id est voluptate. Universa enim illorum ratione cum tota vestra confligendum puto. Quasi ego id curem, quid ille aiat aut neget. Cur fortior sit, si illud, quod tute concedis, asperum et vix ferendum putabit? Collige omnia, quae soletis: Praesidium amicorum. Non laboro, inquit, de nomine. Quod dicit Epicurus etiam de voluptate, quae minime sint voluptates, eas obscurari saepe et obrui. Habes, inquam, Cato, formam eorum, de quibus loquor, philosophorum. Re mihi non aeque satisfacit, et quidem locis pluribus. Nec vero sum nescius esse utilitatem in historia, non modo voluptatem. Cuius ad naturam apta ratio vera illa et summa lex a philosophis dicitur. Si enim ad populum me vocas, eum. Expressa vero in iis aetatibus, quae iam confirmatae sunt. Sed fortuna fortis; Itaque contra est, ac dicitis; Quae in controversiam veniunt, de iis, si placet, disseramus.
Identifying a Sunk Cost can be difficult when there is no precise way of comparing a loss to a gain. The desire to not appear wasteful also can limit your ability to base a decision on relevant costs exclusively, especially when you feel personally responsible for the investments representing sunk costs.
The Concorde Fallacy.
The Concorde Fallacy is an alternative name for the sunk cost fallacy, coming from the way the British and French governments continued to co-fund the development of the expensive Concorde supersonic aeroplane even after it became financially untenable. Their previous investment, financially and politically, was thought to determine the ongoing funding.
Eat too much?
A common example of the sunk cost fallacy is when someone buys a large meal, then overeats to ensure ‘they get their money worth’.
The sunk cost fallacy is an unconscious bias that arises from accounting and financial domains. It is an important consideration in decision making.
Use the following examples of connected and complementary models to weave the sunk cost fallacy into your broader latticework of mental models. Alternatively, discover your own connections by exploring the category list above.
Connected models:
- Cost-benefit analysis: to consider actual pros and cons of a choice
- Opportunity cost: to consider the potential loss of a future facing decision.
Complementary models:
- First principle thinking: in breaking down a situation to its basics.
- Inversion: considering the opposite, e.g. ‘how can we continue to make that loss again?’
- The Lindy effect: to challenge sunk costs and seeing past longevity as a potential positive.
- Availability heuristic: being overly impacted by immediate situations and losses.
- Lock-in effect: is there greater friction to breaking from the status quo.
Read N. Gregory Mankiw’s Principles of economics for information on various economic theories that involve the concept of sunk costs.
This brief article references some of the relevant studies arising from Behaviorual Economics and the Sunk Cost fallacy. Check this video resource for a quick overview of the sunk cost concept and how it applies to the Concorde supersonic plane case.
My Notes
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