It’s a fascinating theory of human behavior that in the real world drives gamblers to lose bigger after they win big, politicians to keep pouring resources into fighting unwinnable wars, and even business owners to make some questionable decisions. Yes, the Sunk Cost Fallacy may even apply to chiropractors!
Sparing you pages of fancy psychological jargon, here’s what it is:
Human beings tend to overvalue the prospect of loss as compared to the possibility of gain. This causes them to make additional or continued investments into a prospect even though evidence points to the fact that it’s not warranted.
To put it in laymen’s terms, the Sunk Cost Fallacy means that you throw good money after bad.
Also referred to as the “Argument from Inertia,” “Concorde Fallacy,” or “Finish the Job Fallacy,” it describes an escalation of commitment based on prioritizing what’s already been spent or invested, rather than what will logically bring about the best outcome.
It’s part of the reason that people keep trying to fix broken relationships, ride a business into bankruptcy even though it’s apparent they’re failing months earlier, and even keep a bad employee around once you’ve spent a lot of time training, monitoring, and reprimanding them.
If you want another example of the Sunk Cost Fallacy – just look at any garage sale!
So why do we do this?
Pride may have something to do with it, as we’re less apt to admit that we were wrong, made a bad initial decision, or things just aren’t working out for whatever reasons. So we invest more and more in an effort to right the ship.
Our decisions are tainted by our emotion. Basically, the more we’ve already invested into something, the less likely we are to give it up. Since we can’t go back – only forward – we illogically sink more and more into it.
But a lot of our propensity for investing more and more into a losing proposition comes from how we innately value things.
It turns out that human beings are far more adverse to loss than we are proportionally attracted to gain. So we only perceive something as a good value when we subconsciously predict that the joy of gain pain will offset the potential pain of loss.
This offset seems to have some built-in parameters, too. For instance, when it comes to financial winnings, we often deem the prospect of twice the gain as worth the risk of complete loss. That’s why the prospect of “doubling down” or “doubling your money” is always on the minds of gamblers who just won – much to their detriment!
That’s the same reason why our losses, failures, and bad experiences stay prevalent in our mind for years and sometimes forever, while corresponding victories are quickly forgotten and cast aside.
This “imbalance between loss and gain” has been explored through some fascinating research, including Daniel Kahneman and Amos Tversky’s groundbreaking work into behavioral psychology in the 1970s and 80s.
Kahneman and Tversky documented how human beings are hard wired to be more motivated to avoid loss (and pain) than they are work towards gain (pleasure).
Behavioral economists also use this theory to explain why human beings almost never operate logically or rationally en masse when it comes to financial matters. Think of a stock market sell-off that’s fueled by fear (the prospect of loss) far more than the hope the price will stabilize or it’s ok to wait it out. Renowned behavioral economist Dan Ariely calls this phenomenon, “Predictably Irrational.”
So how does the Sunk Cost Fallacy apply to your practice, your patients, and the field of chiropractic as a whole?
In what ways are the public overvaluing the fear of loss over the hope for gain when it comes to their health?
And what are YOU sinking time or money into right now - out of familiarity or because you’ve already made a significant investment – when it might be wiser to cut ties?
I’d love to hear your responses!
We’re also happy to help you take a clear, rational look at your business to make sure you don’t make the mistakes associated with the Sunk Cost Fallacy.