The drowned cost trap: why people cling to failed projects

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

The more energy you put in, the harder it is to admit defeat.

In the 1960s, Britain and France decided to work together to develop the super-fast Concorde passenger aircraft. Even before the release, the model was ordered by 16 airlines, but then everything changed. There are more middle-class passengers on the planes, who care about ticket prices rather than flight speed. Moreover, the price of aircraft fuel has risen. Super-fast, but very expensive flights were no longer needed, and the airlines changed their minds about buying Concordes.

But instead of ending the unprofitable project, countries continued to sponsor the development of aircraft and spent much more on it than originally planned. As a result, the Concordes never became popular, and the finished aircraft were sold cheaply to two government-controlled airlines.

The case is so revealing that even the term "Concorde effect" appeared. This is a classic example of the drowned cost trap - the cognitive bias that forces us to hold on to unprofitable projects.

What is the drowned cost trap

The sunk cost effect is a mental trait that forces us to keep investing money, time, and effort in a losing business. Most often they talk about it in relation to economics and finance, but the trap works in any area of life.

For example, when you clearly understand that you do not want to work in your specialty, but spend several more years to get a useless diploma. Or when years of relationship have turned into frustration, but you still stay together.

This happens unconsciously: a person is not looking for reasons to continue - the need to do this is obvious to him. And the more resources are invested, the more difficult it is to recognize the error and stop in time.

For what reasons does it arise

There are several psychological mechanisms responsible for the drowned cost trap.

Fear of immediate loss

Most of all, a person is afraid of losing what he has. People can easily take risks in an effort to win something, but become very careful if they can lose what they own. The pain of loss is always stronger and brighter than the pleasure of gain.

Imagine that you've invested a million to develop a cool app. When the money has already been spent, it turns out that it doesn't even come close to what you wanted. To admit this and stop working on it is simply to throw a million in the trash and experience the intense emotional pain of losing it.

The psyche protects us from pain, forcing us to hope that another million will make the application much better. In the future, you will lose two million, and this is twice as painful. But it will be later (and there is a chance that it will not). You invest and hope that everything will be fine. In any case, you have succeeded in delaying suffering. Well done.

Desire to regain control

When you look at the drowned cost trap in terms of needs, there is nothing irrational about it. A person has a strong need to control his life, to feel that he is able to cope with circumstances. And it forces people to fight for freedom, maintain self-confidence and strive for power - because this way you gain more control.

Waste of money, time, or other resources in vain depress the need to feel competent and in control of your life. It will not be possible to return time back, which means that the only way to regain control is not to recognize the loss and continue to invest.

In this way, you satisfy your need, although at the same time you waste even more time and energy on what in the end will end in failure.

How not to fall into the trap

There are several ways to recognize a drowned cost error before it ends in disaster.

Concentrate on the present

People who are attached to the past are more likely to fall into the drowned cost trap. If a person is focused on the present and the future, it is easier for him to accept losses and move on.

Assessing a position from the point of view of the present is an excellent practice, which is somewhat similar to meditation. You need to detach from thoughts and memories, clear your mind and concentrate on the present moment. With this technique, you will be able to see the present state of affairs without unnecessary regrets about the past and make the right decision.

Imagine another person making the decision

Another great technique that gives immediate results. You need to ask yourself the question: "What would the other person do in this situation?" You can substitute anything for “person”: doctor, realtor, CEO, mom. The main thing is that the decision is made by someone from the outside.

The point is that people make decisions differently for themselves and for others. When we do this for other people, we assess the situation more superficially. Sometimes this gives better results than an in-depth assessment of the situation, in which all the pros and cons are endlessly sorted out.

In addition, we rely less on feelings and are not inclined to take risks. Therefore, when making a decision for another person, you are more likely to see your mistakes and be able to stop in time.