I’ve talked a few times on this blog about sunk costs. Briefly stated, the sunk cost fallacy is our tendency to not consider a decision rationally in terms of its likely future effects, but instead find it easier for us to stick to an inadvisable course of action if we’ve already invested a lot into this. That investment can be literally money — but it can also involve the investment of non-monentary resources like time or energy.
Well, what’s going on with that? There’s a related concept I’d like to cover today called loss aversion.
What’s Loss Aversion?
Loss aversion is an interesting phenomenon. Generally speaking, loss aversion is the phenomenon whereby human beings experience greater negative emotions when they lose something than they get a positive emotional boost from gaining the same thing.
What can this look like? Well, someone is going to be more upset about losing $5 than they would be from randomly finding $5 they weren’t expecting.
Marketers have keyed into this, and it affects the way that they to you when they’re selling things — “Don’t miss out on this amazing offer!” “Only 2 left in stock!”
In online settings, sometimes there will even be an animated clock that’s visually counting down the time left remaining for the deal or to buy the item.
It’s so ridiculous. So obvious what they’re doing. But it still works — because it taps into the threat-sensitive portions of our brain.
Sunk Costs and Loss Aversion
It’s easy to see how the powerful effects of loss aversion could lead to getting wrapped in the sunk cost fallacy. Not wanting to lose what you have (even when you wouldn’t be all that excited about gaining it) can lead people to stick with situations and choices that aren’t serving them in ways that can be quite damaging over time.
This post is part of an ongoing Poly Land feature called Psyched for the Weekend, in which I geek out with brief takes about some of my favorite psychological studies and concepts. For the entire series, please see this link.