I am Guilty. Are You?

My team has spent a quarter on paying off tech debt. But as always, we underestimated it and now we realized we need another quarter before we see some happy faces. After all that effort the team has put, it does not make sense to abandon the project, so you decide to fund another quarter. Let’s do it!

But wait, does it make sense? Should the prior investment be influencing your decision or you should look at this as a new investment. The cost which already has been incurred and cannot be recovered is called Sunk Cost. When people are influenced by sunk costs in their decision-making, they are said to be committing the “Sunk cost fallacy”

You might have encountered this on various occasions like

“I will finish this whole plate because I have already paid for the food”

“I do not like this book but I am already halfway, so I will finish it anyway”

Research has shown that Sunk costs[1] are irrelevant to the current decision and once the initial investment is made, we all are sensitive to sunk cost. Next time when you see the trap, hope you will remember this.

[1] Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35(1), 124–140. https://doi.org/10.1016/0749-5978(85)90049-4