Mastering Decision Making: Overcoming the Sunk Cost Fallacy
“When I let go of what I am, I become what I might be.” — Lao Tzu
Imagine earning a medical degree from Stanford University, then completing five years of training in general surgery at Johns Hopkins Hospital, followed by two years as a surgical oncology fellow at the National Cancer Institute. Then, envision switching to a consulting role at McKinsey & Company. Sounds insane, right?
Well, this is the life of Peter Attia, a physician renowned for his work in longevity.
For most, the idea of setting aside the immense investment of becoming a doctor to pivot into business consulting, and then shifting focus again to longevity research, seems unthinkable.
This is all due to a well-known term in behavioral economics known as the sunk cost fallacy.
What is the sunk cost fallacy?
I’ve studied economics up to the postgraduate level and at the core of all economic theories rests a fundamental assumption:
People are rational agents who make rational and logical decisions.
The sunk cost fallacy, however, challenges this very assumption, potentially rendering many classical economic theories redundant.
In economics, a sunk cost is a cost that has already been incurred and cannot be recovered. Think of a sunk cost as the past. Rational decision-making, ideally, should focus solely on the present and future implications of a decision, not on these irretrievable past costs.
Peter Attia’s remarkable career path is a perfect example of rationality and logical decision-making. Commonly, most of us adhere to a chosen path in life, swayed by the time, energy, and resources we have previously invested. This habitual reliance on past commitments often traps individuals in careers or educational trajectories that no longer align with their true passions, solely due to their past investments.
Thus, in our attempt to not waste the past, we tend to waste our future.
Yet, for Peter Attia, even after dedicating a decade to specializing as a surgeon, his decision to switch careers was based solely on the present and future, not anchored by the past. This decision-making process marks a deviation from the typical influences of sunk costs most of us face when making a choice.
The Past is irrelevant
The past should not dictate our present. If you find yourself rationalizing choices based on past investments rather than current circumstances or future prospects, it might be time to pause and take a step back for some introspection.
Reflect critically on aspects of your life like education, career, relationships, and investments. Ask yourself: Are these choices motivated by present realities and future possibilities, or are you simply holding on to what’s already been spent?
Think about the daily decisions you make. Would you attend a concert in unpleasant weather simply because the ticket, already paid for, is non-refundable? Do you compel yourself to finish a restaurant meal you don’t enjoy simply because you will pay for it? Do continue watching a movie or reading a book that fails to engage you, in hopes it might turn around?
Our society often frowns upon quitting, equating it with failure. It promotes a narrative that perseverance is always virtuous. Yet, there are instances where quitting, after considering all other options, is the most rational and logical course of action.
Recognizing and accepting our susceptibility to the sunk cost fallacy is the key to a happy, fulfilling life.
It’s crucial to remember that even governments and large corporations often fall prey to the sunk cost fallacy. Not just you.
Concorde Project
The Concorde supersonic passenger jet, developed jointly by the governments of France and the United Kingdom, is a textbook example of the sunk cost fallacy. Despite outrageous costs, limited commercial viability, and environmental issues, both governments persisted in funding the project for years due to the massive investments already made.
Kodak
Kodak, once the undisputed leader in photographic film, continued to pour money and resources into film technology even as the digital photography market was expanding exponentially. Their hesitation to pivot due to their heavy investment in film technology is a classic example of a sunk-cost fallacy.
Montreal Mirabel Airport
The Canadian government proceeded with the expansion of Montreal’s Mirabel Airport despite clear evidence of its redundancy and the projections that the airport would not be as busy as anticipated, mainly because of the significant funds already spent.
Instagram’s journey stands as a testament to a company that successfully avoided the sunk cost fallacy. The app, launched in 2010 by Kevin Systrom, was initially called Burbn — a nod to whiskey. Its initial purpose was to let users check in at particular locations where they went out for drinks, make plans for future check-ins, earn points for hanging out with friends, and post pictures of their meet-ups. However, the app wasn’t very successful; it was too complicated. Systrom paid attention to user responses in real time and realized that people were using only one feature: photo-sharing. Instead of clinging to the time and resources invested in building all these complex features, he completely overhauled the app to focus solely on what mattered at the moment: photo-sharing. The future of Instagram, as we know it, is history.
My Story: The Art of Letting Go
The sunk-cost fallacy teaches us the art of letting go.
Embracing this mindset liberates us from the burden of choice, instilling the understanding that even if something doesn’t quite work out, we are free to learn from the experience and move on.
After dedicating five years to formal education, I came to a pivotal realization: a conventional 9-to-5 job was not my calling. This epiphany led me to establish my own software company, a bold leap into a field far removed from my academic background.
I found joy in the creative aspects of building a business, but the aspects of selling and marketing did not resonate with me. I was doing everything for the wrong reasons. Eventually, I found the right people to take over and sold the company.
After living in the United States, the most affluent country in the world, I realized that the American dream was, in some ways, detrimental. I met people who seemed to have everything, yet at the same time had nothing.
My six-year relationship was not working out, and I couldn’t envision myself getting married. So, I let all that go and moved back to my home country. There, I spent a year in introspection, focusing solely on nurturing my body and mind. It was then, out of nowhere, that I began writing for the first time in my life. In less than a month, I completed a 350-page manuscript about the human mind and the human condition.
I started sharing excerpts on Instagram, and to my surprise, my writings resonated with over 160,000 people in less than two years. I began conversing with people from all over the world, learning and understanding more about myself in the process. I finally discovered what I was good at, but that was only possible because I was brave enough to step beyond the confines of my past, allowing the present to sculpt a new reality. Some may say I am a quitter, a quitter who managed to unearth his true calling.
When you reflect on your life, what matters is how you act now. The past, while a source of lessons and wisdom, is irrelevant in shaping our decisions now. Do not become a prison to it.
Cast aside regrets, shame, and guilt; release these burdens. Focus your energy on the present, and allow it to be the foundation for your future. Our time here is limited, fleeting each moment.
Don’t waste your life holding on to anything that no longer serves you. Savor the journey, and enjoy the ride.
