Have you ever sat through a truly terrible film at the cinema? Most of us have — and however bad the film, we usually grit our teeth and watch it to the end. But a pirated copy is a different story: you'd switch the computer off without a second thought and go do something more worthwhile.
Why the difference between the two? The intuitive answer is: because I paid for the cinema ticket, while the pirated film cost nothing — so to avoid wasting money, I'd better watch the cinema film to the end. That sounds reasonable, yet think it through and it falls apart entirely.
Why? Because the money you spent on the ticket is a sunk cost, meaning that whether you carry on watching or walk out right now, you can never get that ticket money back. So the moment you're weighing up whether to leave, there are really only two things to consider:
1) Leaving – Cost: you might miss out on the enjoyment and inspiration of the film, if there is any; Payoff: free time
2) Staying – Cost: time (watching takes time) and opportunity cost (you could spend that time doing other things); Payoff: the enjoyment and inspiration of the film
The cost of the ticket simply shouldn't enter the calculation at all, because no matter what you decide, you can't recover it. And yet, if you've been through something similar, you'll know that when you're weighing up whether to leave, your focus always lands on the value of that ticket. You're not alone: psychological research has found that sunk costs influence people's decisions across all kinds of domains. People tend to fold a cost they've already paid and cannot recover into their list of considerations — and this is what's known as the sunk cost bias [2].
The sunk cost bias casts its shadow across many different domains; and "cost" can refer to anything you put in, including time, money, energy or emotion. The cinema example above is a case of money spent in everyday life. In business, the most famous example is surely the Concorde supersonic aircraft: well into its development, the British and French governments already knew that Concorde made no economic sense whatsoever. Yet on the basis of the money already sunk into it, they kept on funding the project — and the result, naturally, was a commercial disaster. That's why the sunk cost bias is sometimes also called the Concorde fallacy. As for relationships, it hardly needs saying — examples are everywhere. One partner treats the other badly, yet that other partner doesn't dare cut things off. The reason behind it may well be the thought that they've already poured so much time and emotion in, and they can't bear to see all those sunk costs simply drain away for nothing.
Understanding the sunk cost concept doesn't make you automatically immune to the sunk cost bias. The psychologist Jonathan Haidt (see this book) [3], along with conventional wisdom, holds that human decision-making has two parts: reason and emotion. Having read this far, you may understand on a rational level that you shouldn't be ruled by sunk costs — but the next time you face a similar situation, that nagging reluctance to let go will still be there.
So how does mindfulness meditation improve our decisions? One study found that practising mindfulness meditation reduced the influence of sunk costs on people. The author sees two reasons behind this. First, mindfulness meditation, broadly speaking, trains people to pay attention to the present moment, and so reduces the tendency to dwell excessively on the past or fret about the future. Because a sunk cost is something already in the past, mindfulness can lessen its influence. Second, in mindfulness meditation you practise the capacity to observe thoughts, impulses and emotions purely as they are. So a person who has honed mindfulness may still feel that reluctance and that pang of regret when weighing up a sunk cost. But because they grasp what a sunk cost is, and because they can keep emotion from pulling them along, they are still able to act on the rational choice.
To sum up, the reason people fall into all manner of cognitive biases (Cognitive Biases) may be that, in making a decision, they are swayed by the past. Look a little deeper, and learning from past losses is in fact a hugely important ability — and the sunk cost bias may simply be a by-product of it. Mindfulness meditation can help us see the decision-making process clearly and make the right call at the right time. This article has taken the sunk cost bias as its example, but there are in fact other examples too. So, mindfulness meditation training holds a certain value for business, for decision-making, and even for our private emotional lives.
References
- Ariely, D. (2009). Predictably irrational, revised and expanded edition: The hidden forces that shape our decisions. Harper.
- Hafenbrack, A. C., Kinias, Z., & Barsade, S. G. (2014). Debiasing the mind through meditation: Mindfulness and the sunk-cost bias. P2.sychological Science, 25(2), 369-376.
- Haidt, J. (2015). The happiness hypothesis: Putting ancient wisdom to the test of modern science. London: Cornerstone Digital.
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