Photo: Cristian Newman
When we are trapped in a sunk-cost fallacy, we get too stubborn to walk away from an objectively bad decision. We will not cut our losses and run, because we have invested too much money, time, and energy towards it. Behavioral scientists have long called us out on this trap.
Now, there’s new research that finds we can get roped into other people’s sunk-cost decisions too. Did someone choose a bad vacation spot? We’re not likely to cancel. Now that’s our problem too.
This is why you’ll wear your aunt’s scratchy, gaudy sweater
When you see someone make a bad, unprofitable decision that they cannot get out of, you won’t abandon them to their fate. You’ll shovel down cake even when you are full if you know your coworker drove across cities to get it. You’ll agree to keep watching that terrible hotel movie if your partner already bought it. You’ll keep going to tennis lessons your family member paid for, even if it pains you.
These were the kinds of experiments, Christopher Y. Olivola, an assistant marketing professor at Carnegie Mellon University’s Tepper School of Business, tested. He found that we will keep forging ahead on someone else’s bad decision, feeling their aversion to loss and regret as our own. “Participants were more likely to choose the less enjoyable alternative when someone else had invested substantial time or money to obtain it (sunk cost for other: high/present) than when that same person had invested little or nothing (sunk cost for other: low/absent),” he wrote.
It does not even matter if the decision maker followed through on their bad investment. “I repeatedly observed a sunk-cost effect when the person incurring the cost was someone other than the decision maker. Moreover, this occurred even when that person would not observe whether the decision maker honored his or her sunk cost,” Olivola said in his paper.
This is an irrational impulse because presumably, the decision maker would not want us to be miserable. “Their past sunk investments do not justify making ourselves less happy,” Olivola said. And yet, we continue to have hero complexes. We want to save people from themselves, especially when we know what their decision cost them.
“Imagine, for example, receiving a rather gaudy and uncomfortable sweater from a well-intentioned aunt and consider how your willingness to keep it and wear it at family events would be affected by learning that she had saved a month’s salary to purchase it,” Olivola said. “I suspect that many readers would find it psychologically more difficult to discard the sweater in light of their aunt’s significant investment.”