We hang out with younger people and over the last few months we have been to our fair share of engagement parties, weddings and christenings. And the next 24-months are looking very similar and am looking forward to all of them.
Having a chat over dinner, we were talking about a “perfect” wedding we had been to. Now, we are not sure if this was perfect for the bride and groom or their parents, or their guests, but it was lovely, well-planned and very expensive. Make no mistake about it, cheap it was not.
Our 17-year-old daughter was shocked to hear the prices we bandied out. She was, “Like, what? That is so much money.” And then she said, “even if you hate your marriage, you would stick to it as otherwise you would have wasted so much money.”
We laughed as it is ludicrous to think this is something that would keep you in a marriage but think about that. How many times in our lives do we follow this type of logic? Not with marriage specifically, but with many things.
I proceeded to explain to my daughter that the cost of the wedding was a “sunk cost” and had to stop when her eyes rolled over, got up from the dinner table and excused herself. But before you do that with this blog, here is a question for you.
Why do we always seem to take into account a previous decision(and its resultant costs or benefits) as the basis for a new decision?
Investopedia defines sunk costs as costs that have already been incurred and cannot be recovered. Naturally, a sunk cost is different from a future cost, [and] sunk costs (past costs) are excluded from future business decisions because the cost will be the same regardless of the outcome of a decision.
Once you get your mind around it, this is very logical and something we would all understand and subscribe to. In a business setting, this makes perfect sense. But throw in a bit of “personal”and all of a sudden, things change. For some reason, we embrace sunk costs, and these drown us from making the right decision or even making any decisions at all.
“I studied pre-med as I really wanted to be a doctor and now that med school is looming, I want to do something completely different. But I already devoted 4-years to this so I may as well stick it outand hopefully it works.”
“I stood in line for 48-hours to buy the new iPhone but 20 minutes before the store opened, I had an epiphany and don’t want it anymore. But seeing how I waited for so long, I may as well buy it now (*).”
“I love the Red Hot Chilli Peppers and bought concert tickets but in the meantime, I met the girl of my dreams and the concert is on her birthday. I have to go to the concert because I already paid for these tickets and then catch-up with her later.”
“My new start-up will save mankind, but it is not working, and it is ever unlikely to work but it is my dream so I need to keep on pursuing it. I really can’t pivot as it will not be true to me.”
“I invested in this company as I really believed in it. Things are not great, and a lot has changed but maybe I invest a bit more to see if it can turn around. In some way, it owes me.”
“I have been working here for 10 years and the last 3 have been pretty miserable. Surely I cannot just pack up and take that other job offer now?”
“I can’t stand my husband but the wedding cost so much and we are still paying for it. Maybe this is a sign to stick it out and see if we can make it work.”
The original decision, the one already made in the past, that made sense to the “Yesterday You” not the “Today You”. Whatever that decision was (and its outcome), has no bearing on the decision you need to make now. It is not relevant.
Sunk costs are with us everywhere and unchecked, they can frustrate us, stifle us and really drown us. Ignoring sunk costs is easier said than done. A quick hack? When working through my decisions, I think about the title of a book written by S. E. Hinton, ThatWas Then, This is Now. As a filter, it is a great way to focus on the “Today Me” instead of the “Yesterday Me”.
Remember, whatever you decide may work or may not work and we need to get used to this tension. Make that decision today and don’t drown in sunk costs.
(*) Buy the iPhone and sell it to the 145th person in line. They will probably be sold out before she gets into the store and you may be able to get a premium price for it.