Sunk Costs Will Sink You

In finance, a sunk cost is defined as a cost that’s already been incurred and can’t be recovered. Classical economists argue that when making a rational decision, sunk costs should not be taken into account. They are bygone. All that should be considered are current alternatives and future consequences.

Sounds great in theory, but human beings are not often rational creatures. The psychology of sunk costs, knowing you spent lots of time and money pursuing one path, only to find it’s the wrong path, holds you back from making the best decision now. You do nothing. Or worse, you spend even more time and money pursuing the wrong path. Hence the phrase, “throwing good money after bad.”

Our fate is determined by the quality of the decisions we make. When taking action, we need to see things as they actually are. With clear eyes and hearts. Not as we wish them to be. All that matters is what we do now. In this moment. How we arrived here is irrelevant.

I saw an interview with Daniel Day Lewis (“DDL”) and Paul Thomas Anderson (“PTA”) discussing the making of the film “There Will Be Blood.” (If you haven’t seen the film or it’s been a while, go watch it. Now.) DDL worked for several years on the character of Daniel Plainview before shooting started. Getting the behavior, the posture, the voice, etc…just right. He showed up to the set, in character, as per his norm, utterly prepared. About a week in to shooting however, something wasn’t right. PTA sat DDL down, showed him the dailies. Said he needed to go in a different direction with the character. Day Lewis saw what he was doing on screen and agreed. They reshot the entire week.

How many of us in the same situation would have the courage, the openness, let alone, the ability, to pivot, to change on a dime? Especially when factoring all the sunk costs. Fortunately, both these artists only cared about what was right for the character and the film. They both bravely ignored ego and sunk costs and made a quality, new decision. The rest is Oscar history.

What sunk costs hold us back from choosing the right path, from making a decision, from making our art?

P.S. – For more on sunk costs, check out Seth Godin’s excellent Akimbo podcast episode HERE.