The other day someone shared, I hate being a CPA, but that’s what my degree is in and I’ve worked in the field for 8 years already, so I really can’t make a change.
Oh, the disheartening weight of that mindset.
This type of thinking is a cognitive misstep that behavioral economists call “sunk-cost fallacy”. It’s what I call fooling ourselves into staying put by justifying our misery.
Sunk-cost thinking is about the past.
It’s the time, money, or sweat equity you’ve put into something, which makes it hard to abandon.
Maybe it’s your 4-year degree. Maybe it’s the 15-year career you’ve invested in. Maybe it’s the house you bought or the business you started. Maybe it’s the wedding vow you took 20 years ago.
Whatever “it” is—money, time, effort, or another resource—“sunk cost” is about the past.
Along with the backward-looking nature of sunk-cost thinking is the misguided and paralyzing tendency to believe the more we’ve invested in something the fewer reasons we have to change or abandon it. But this thinking chokes possibility, stifles reinvention, and keeps us shackled to the past—making it more difficult to go from living by default to living by design.
Even when the old no longer serves us. Even when we’re miserable. Even when we know we should make a change. If only we weren’t so worried about the sunk cost, we would run down the path of deliberate life design.
We stick with the status quo because we’ve already invested in it—not because it’s the best choice for who we are today.
In fact, we can become irrational in our emotional attachment to past decisions. The expression “throwing good money after bad” comes to mind. For instance, are you putting more time in an already failed project or expending additional effort in a stunted relationship where growth stopped long ago?
We sometimes have an unflagging willingness to put aside rational decision-making and continue pouring resources into situations that don’t serve us—for no other reason than the emotional attachment we have to past decisions.
Be vigilant about falling victim to this way of thinking.
While sunk cost is about the past, opportunity cost is all about the future.
It means for every hour or dollar you continue investing in one thing, you’re giving up the opportunity to spend that hour or dollar on something else.
Think about it: Every choice you make has an opportunity cost—the cost of not putting your resources (again, that’s time, money or effort) into another opportunity.
It can be simultaneously astounding and heartbreaking to witness the opportunity costs some are willing to endure because they’re stuck in the immobilizing grip of sunk-cost thinking that perpetuates decisions of the past, even when new and different decisions would take them closer to their best life.
A great way to shine a light on opportunity costs is to ask yourself: “What other opportunities am I missing out on that would better serve me than what I currently spend my resources on?”
I faced sunk-cost thinking head-on when I left a career in the field of website usability.
People asked, How can you walk away from all that time you’ve invested? How can you just start over? These questions are the mouthpiece of sunk-cost thinking.
Upon learning of my new career direction, one person even said, Think of all the years you’ve wasted.
That statement, on its face, is irrational.
The fact is I was no longer satisfied with or fulfilled by my usability career. While I didn’t view the nine years I’d invested in that career as “wasted”, I certainly would have felt that way if I’d invested another 10 or 15 years—all the while knowing I was no longer engaged in the field.
Making a rational decision means choosing the course of action that would have the best results from that point forward. For me, the best decision required abandoning a prior course of action even though I’d made a substantial investment in terms of time and effort.
It’s all too common to let sunk costs influence our future decision-making in ways that don’t serve us. When we let sunk costs dictate the future, we don’t make good choices—or even realize we have a choice.
A powerful strategy to counter this sunk-cost fallacy is what’s known as zero-based thinking.
The idea behind this strategy is simple: You revert to zero by putting the past aside and considering the present moment as your blank slate.
To practice zero-based thinking, ask these questions:
- With your current knowledge and experience, would you continue doing what you do now?
- Knowing what you know now, would you still make the same decisions in all areas of your life—career, relationships, finances, possessions, etc.?
These starting-from-scratch questions free you from the past as a straightjacket and encourage you to consider the present as your starting point.
Starting today, would you buy all the things you currently possess? Would you have the same relationship to money? The same habits and routines? Would you have the same job and be in the same relationships?
When I applied zero-based thinking to my usability career, I started from zero by asking myself, Knowing what I now know, would I choose to enter the field I’m currently in? My answer was no.
Without the burden of sunk-cost fallacy (You’ve already invested nearly ten years in this career. You’re an expert in your field.), zero-based thinking allowed me to take my life in a different direction without angst and second guessing—and with the clarity, energy, and optimism of being unburdened by past decisions.
Zero-based thinking enables us to design our lives without the knee-jerk default of past decisions. Because sometimes the best decision is to change course. Regardless of money spent, effort made, or time already invested.
Are you hesitant to quit something that somewhere deep inside you know you need to let go or move beyond? Are you suffering from the paralyzing belief you can’t quit something because of all the time or money already invested?
How are you letting the fallacy of sunk-cost thinking get in your way? What opportunity costs are you sacrificing because you’re focused on the past rather than your future?