How many times have you forced yourself to attend an event you’d rather not, just because you spent money on a ticket? This is the sunk cost effect, and it occurs when a person chooses to do something because they have spent unrecoverable resources, like money, time or emotion, on it.
The sunk cost effect can affect business decision-making and have dire consequences when a person falls victim, Harvard Business Review reports, and it’s important to remember that past unrecoverable costs are irrelevant when it comes to future decision-making.
A recent study found that when money is involved, individuals who are susceptible to the sunk cost effect are three times as likely to fall victim as those who are able to move past the effect.
The study also found that experience, rather than raw computational power, can enable someone to move past the effect’s power. In other words, being wise may help more than being smart. In order to avoid bias when making decisions, you should ignore instincts and realize the sunk cost effect when you see it.