The Sunk Cost Fallacy

OVERVIEW

In this episode, Simon Breakspear unpacks the sunk cost fallacy – a powerful cognitive bias that keeps educators clinging to ineffective programs simply because they’ve already invested time, money, or energy. This hidden trap can block the strategic pruning needed for real progress. Learn how to spot it, talk about it, and move on – so you can redirect resources toward what will truly make a difference.

TRANSCRIPT

Well, hey there, it’s Simon. It’s great to be joining you, whether you’re taking a walk, driving to work, ⁓ or doing the dishes or other chores at home and taking a little time to upgrade your thinking. Today, I want to explore one of the ideas I write about in the pruning principle, and particularly one of the things that really stops us from engaging in thoughtful analysis of perhaps what needs to go. And it’s connected to what a behavioural economist would call the sunk cost fallacy. So I’m going to read you a little bit about how I unpack this in the book, and hopefully give you a chance to reflect a little bit about where the sunk cost fallacy might be playing a role for you in actually getting in the way of making some hard but important strategic subtraction decisions. Don’t be locked in by previous mistakes.

We’ve all had an experience like this. A school signs up to an expensive multi-year program with an external provider to run some professional learning and support evidence-informed practice improvement. Hey, it seems like it’s run by a credible group and other schools you know are signing up to do the same, giving you the confidence to jump in without necessarily doing your own deeper due diligence. One year in, things aren’t going so well. The presentations run by the consultants are long, boring and break all the rules about effective teaching that they themselves are asking your teachers to follow.

Feedback from teachers is that they don’t find it all that relevant, unless the observations show there’s almost no transfer into practice from the program. Beyond your keenest group of teachers, who volunteered to be more deeply involved, but to be honest, they were kind of doing it already before you started the program. You’re now a principal or a leader who spent multiple thousands of dollars maybe a decent chunk of your entire quota of professional learning for the year.

What do do? Enter what psychologists call the sunk cost fallacy. We as humans have an innate tendency to defend our past investments. It is a well-established cognitive bias that leads us to want to continue with something rather than prune it. Because of how much time, money or energy we’ve already put in. Even if it is ineffective, potentially redundant or no longer solving a problem that we have. We simply can’t bring ourselves to give it up. The sun cost fallacy comes up in many areas of our life.

A good example is a problematic secondhand car. While it may have looked fine upon purchase, it wound up in one breakdown after another with you having to sink more and more costs to fix it up. Rather than sell the car and start afresh, the natural human tendency is to continue pouring money in.

Not so much because we believe that the next fix-up will solve the problem, but because we feel as though we’ve spent so much money on it already that we’re too far in to stop. The sunk cost fallacy prevents us from seeing all of that previous money spent on the dead car as a sunk cost. That is, a cost that can’t be returned and therefore shouldn’t be part of future decision-making. We all get emotionally attached and hold on to things longer than we need to.

Maybe you’ve had the experience of buying a piece of clothing online that didn’t fit or didn’t look good, but because you didn’t return it on time or there was no return policy, you’ve gotten stuck with something you probably paid far too much for, but will never wear. Many people find themselves keeping that item year after year in their wardrobe like some sort of sartorial zombie. Even when we do a spring clean and the item gets brought out, still doesn’t fit, still doesn’t look great because of the sheer amount of money we spend on it, we put it back in our wardrobe. The sunk cost is already spent. You can’t return it. Instead, we should probably say, thanks so much, I to spend that money to learn that that type of clothing or that type of purchase doesn’t work for me. In a similar way in our educational settings, all of us have a tendency to hold on to things we’ve committed to in the past that we’ve spent money on that we’ve asked our staff to spend professional learning and planning time on.

It feels painful to prune them away because we’ve already invested. Even if we’re no longer convinced that the return relative to effort is worth it, or that the problem we’re solving is still relevant, we tend to get caught up in continuing things because the level of guilt about what resources have already been sunk. This can get in the way of effective pruning. So how do we release ourselves from sunk costs?

We need to be aware of this natural tendency as humans to avoid pruning because of a sunk cost, and once we’re aware of it and talking openly about it with our colleagues, we need to learn to overcome it. We can’t get back the money, the time, the energy we’ve put into things. However, we can think seriously about the additional money and time that we’re going to add and consider redirecting those resources into activities likely to have a better effort to impact outcomes.

In our story earlier, the sunk cost fallacy would lead this principal to commit to the second year of the program and keep throwing good money and time after bad. But their alternative is to release themselves from the sunk cost. A pruning principal leader who’s tuned in to the dangers of the sunk cost fallacy would move to cancel the contract, commit the subtractive change narrative, and communicate that subtractive change narrative, and focus on how to use their professional learning budget, time, and money on the best possible future impact going forward. That acknowledges that the money they’ve spent has taught them some valuable lessons about doing their own investigations, being more demanding about the quality of external PL provision in their school, and ensuring they set up regular feedback and debrief sessions early in the process, rather than questioning themselves and just hoping things will get better. The moral of the story is the fact that you’ve invested doesn’t justify investing even more on something that’s not having the intended impact. Sometimes something will not work, or we will get it wrong, and that’s okay. It’s not about perfection, it’s about the speed with which we accept and learn from the mistake and move forward, focusing on the future, and not trying to make up for the past is the key here. Nothing is wasted. Some lessons are just more expensive than others.

So might the sunk cost fallacy be getting in the way of your thoughtful examination of what might need to be pruned? Can you release yourself by really realising that perhaps you’ve spent time and money to learn some valuable lessons, but what you’ve spent in time and money and energy in the past shouldn’t have any influence on how you decide to spend future time and money to have the best or the highest possible impact going forward. So release yourself from sunk costs and focus on maximizing future impact. Sometimes you win and sometimes you learn. All the best with overcoming a sunk cost fallacy in your leadership and helping your team have more open and deliberate discussions about the lessons learned and how we can move forward.