Elite Pharmaceuticals Inc (ELTP)

[The ELTP King]

How the Sunk Cost Fallacy Makes You Act Stupid

Do you think you make smart, rational decisions most of the time?

Chances are good that even if you pride yourself on being rational most of the time, you still occasionally fall for the sunk cost fallacy.

What is this fallacy?

In economics, a sunk cost is any past cost that has already been paid and cannot be recovered. For example, a business may have invested a million dollars into new hardware. This money is now gone and cannot be recovered, so it shouldn’t figure into the business’s decision making process.

Or, let’s say you buy tickets to a concert. On the day of the event, you catch a cold. Even though you are sick, you decide to go to the concert because otherwise “you would have wasted your money”.

Boom! You just fell for the sunk cost fallacy.

Sure, you spent the money already. But you can’t get it back. If you aren’t going to have a good time at the concert, you only make your life worse by going.

This is like going to Yale for your degree in Education. The economics were probably never going to work out favorably, but that doesn't mean you should drop out 3 weeks before graduation just because Uber drivers make a ton of money.