I finished Week 1 of business school and it has been a mixed bag of emotions. There is of course the fact that it is a significant step in my life but physically environment is unchanged. Meanwhile, I have met so many amazing people virtually, I can only imagine the vitality that campus would bring with it.

This week in the Managerial Economics class, the concept of sunk cost was introduced. Sunk cost refers to money that has been spent and which cannot be recovered. However, because the money has been spent, psychologically one is more likely to base the future decisions on it, justifying the spend. For example, you buy a pair of jeans on a whim and they do not fit you well. The purchase now is a sunk cost. Every time you put on that pair of jeans you are uncomfortable, yet you’d choose to keep wearing it because well, you need to get your money’s worth. However, in the tryst to justify the spend, you are paying for it by inconvenience, dissatisfaction, excess time spent to get in and out of it, which in economics can be quantified in monetary terms too.

The need to stick to a decision despite it being far from ideal to justify the spend is the sunk cost fallacy, irrespective of whether you wear the hell out of the jeans or use it to fuel a bonfire, the initial amount spent is not going to be recovered. In business of course, there are more serious implications. A firm may actually end up losing more money by sticking to the sunk cost fallacy. A decision tree that stems from the reasoning that just because X amount of money was invested in it, it should be kept operational, even though in the long run it may amount to a large loss.

I thought it’d be interesting to think of some emotional sunk costs we take in life and don’t even realize. There is a conditioning that if you have invested time in something, you might as well stick to it even if it is making you unhappy. Unhappiness is valued less compared to time, perhaps because like money, time can be measured, happiness cannot be. There are relationships- both romantic and otherwise which have reached their stagnation point, yet the reasoning is often based on the years spent together- a sunk cost. This does not take into consideration that the future is still up for grabs and it does not have to shackled by the decisions of the past. The years spent are gone, grand goodbyes to them!

It could also be an emotional investment involving a career where years have been devoted, yet it is not sparking joy. (All hail Marie Kondo!) One approach is to be filled with guilt thinking of the time spent in the pursuit and choosing to stick to it even if the heart wants to learn bee-keeping. I had no idea that the sunk cost concept would alter the way I look at my own behavior and that of my loved ones henceforth. Sunk emotional costs have the power to hold us back, trap us in an imagined cell of circumstances.

Here is to making decisions that emotionally empower! Every time you are tempted to lapse back into a pattern just because of the past investment, imagine a seductive voice whispering in your ears, sunk cost fallacy!