What on earth is the 'Sunk Costs Fallacy'?

Don't you just love it when something you didn't know had a name... has a name?

I've been reading an intriguing book called Think Like a Freak: Secrets of the Rogue Economist from those Superfreakonomics chaps and of the many interesting points I picked up, the one that pleased me most was finding out about the 'sunk cost fallacy'. Sunk costs are the amount of time, energy and resources you have invested in an enterprise. The danger, or the fallacy, is that because you have spent these costs you must continue even if you are flogging a dead horse* by doing so. You don't want to end up losing all that money and effort over nothing, do you? 

Good examples of this are ordering too much food and feeling you have to eat it to 'get your money's worth' or keeping things you don't want or need because they were expensive.

I, and a small circle of friends, have been referring to this as 'the queue at the Blue John Mines' after a 1990's bank holiday trip spent in a long line whilst disputing whether to stay because we'd already invested hours in the trip or abandon the whole idea and recoup what was left of the day. The trouble with 'the queue at the Blue John Mines' is that it means nothing to everyone else in the world. (They weren't even mines, it turns out, but a cavern, but we didn't wait to find out as it happens.)

The other things in the book that really struck me include: the importance of admitting you don't know, defining the problem properly before trying to solve it, and the importance of premortems - imagining your plans going wrong and asking what would have been most likely to cause it. Also - and this is where the sunk costs fallacy comes in - the importance of quitting before you waste more time and energy going down a wrong path. 

There's a much longer piece about the sunk cost fallacy on You're Not so Smart... we all do it all the time!

* No dead horses were hurt in the making of this blog