Abstract
Money and time you've already spent are gone whichever way you decide. Even so, the more you've put into something, the harder it is to walk away. Hal Arkes and Catherine Blumer showed in a series of experiments how strongly past spending pulls on decisions that should only look forward.
This check keeps the two apart. What you've already spent goes in a separate box where you can see it but it doesn't count. You then compare the remaining cost and likely payoff of carrying on with the best other use of the same time and money.
Method
- 01
Name the commitment
Write down the project or purchase you're deciding whether to continue.
- 02
Set aside what's spent
Note what's already gone, then leave it out. It's the same whichever way you decide.
- 03
Estimate what's ahead
Estimate the cost to finish and what it's worth if it works. Then estimate how likely that is.
- 04
Price the alternative
Ask what the same remaining time and money would get you if you spent them elsewhere.
- 05
Compare from here on
Carry on if finishing is worth more than the alternative. If it isn't, stop and close it out properly.
When to use it
- A project is over budget and the main argument for continuing is how much has gone into it.
- You're hanging on to a course or a subscription because you already paid for it.
- A team doesn't want to cancel work it's proud of.
Common pitfalls
- Letting the sunk cost back in as “we'd lose everything we spent”. That money is gone either way.
- Forgetting salvage value. Anything you can reuse or sell counts as a future benefit, so include it.
- Comparing against doing nothing instead of the best alternative.
- Overcorrecting. What you learned along the way still counts when you look ahead.
Origin and references
Attributed to Hal Arkes and Catherine Blumer (1985).
- Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35(1), 124 to 140.
- Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior and Organization, 1(1).
- Staw, B. M. (1976). Knee-deep in the big muddy. Organizational Behavior and Human Performance, 16(1).