The Sunk Cost Fallacy

I’m buried in work (it’s 2 AM on a Sunday), but this little thought caught my attention because it’s simple and, even so, most people still fall for it. The original post is Sunk Cost for Architects, but I think it should be Sunk Cost for Managers. Here’s the translation:

Let’s say you’ve bought a movie ticket but then realise from Rotten Tomatoes that the movie stinks. Assuming you can’t sucker one of your friends to buy the ticket, you have a couple choices:

1. Since you’ve paid for the ticket, you might as well suffer through the movie anyway.
2. Throw away the ticket and do something else.

Now what?

The sunk cost fallacy is not realising that in either case, you’ve already paid for the ticket and therefore the sunk cost is not relevant for rational decision making.

Case 1: You suffer the cost of the ticket + You suffer through the movie

Case 2: You only suffer the cost of the ticket

Therefore, rationally 2 is the better option.

So instead of a movie ticket, let’s say it’s an enterprise software license… or perhaps some custom hardware.

Should how much was paid for the license or hardware have any bearing whatsoever on what is decided to be the best future architectural approach?

Well, only if the management system you’re operating in punishes rational behaviour and rewards irrational behaviour.

Total common sense. Economists are more used to studying and cataloguing behaviors like this. I recommend reading about other concepts like the good old Opportunity Cost. Parkinson’s Law, to me, is the corollary of the gas expansion law, and every developer (myself included) has suffered from it.

Nobody’s right all the time, but the daily exercise of thinking with logic and skepticism, instead of running on dogmas and precepts, improves our odds a lot. Maybe then, whoever watches A Beautiful Mind will remember more of the genius behind the Nash Equilibrium than the melodrama.