Don’t throw good money after bad, don’t let past choices unduly influence future decisions, and avoid the “sunk cost” fallacy. It’s an easy trap to fall for, so you’ll need to stay vigilant.
What does this cognitive error look like, and how can you protect your interests during your next negotiation? First, an example, and then some quick thoughts:
Suppose that months ago and well in advance, you bought an expensive ticket to the big game. Fast-forward to now. Turns out, your team has lost its star players to injuries and is terrible and non-competitive. The question isn’t whether they’ll lose, but by how much.
Come gameday, it’s snowing buckets, the wind chill is -10 degrees, and on top of it your daughter now has an end-of-year dance recital that afternoon (indoors, and after COVID-19, of course). Do you force yourself to go to the game, sit miserably in the snow, and miss the recital, since you’ve already paid good money for the ticket? Or do you look at your options anew, realize that the only reasonable choice is to attend your daughter’s recital, and unload or eat the ticket?
The fact that months ago you paid for the game ticket should logically have no impact on the choice you make today. That money’s gone, and going to the game doesn’t bring the money back. A bad choice is a bad choice, regardless of what happened in the past.
In mediation and negotiation, too, I regularly see sunk costs lead people to make illogical decisions. “I’ve already spent hours preparing for trial, so we might as well reject the offer on the table and go to court.” Or, “After waiting this long, what’s another few months fighting this case instead of settling (for a reasonable sum)?” Well, maybe you don’t take the offer, but don’t walk away just because you’ve already invested time getting ready for court or preparing for battle. That should not be relevant to the decision at hand, despite the emotional appeal.
Independent of your prior investment, is what’s now offered a good deal or not? That’s the rational question.
It’s easy to let sunk costs lead us astray, and the fallacy of making prospective decisions based on these past costs is an alluring one. Just be aware of them and stay wary. The next time you catch yourself tending to make a negotiation decision about the future based on unchangeable bygones, stop and think: Are you allowing sunk costs to fool you into making an illogical choice?
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