Whatever It Takes: A Lesson in Sunk Costs

There is an old saying that talks about not throwing “good money after bad.”  What that’s actually talking about is the “Sunk Cost Fallacy.”  This is when your brain tricks you into thinking that the time, money, or effort that you put into something means that you must keep going, ignoring the additional cost involved.  It’s like sitting through a movie that you can tell in the first five minutes is going to stink.  You’re not going to get the money back for your tickets, but it isn’t too late to spare yourself two hours of suffering through a lousy film.

The sunk cost fallacy is an example of a cognitive bias.  Cognitive biases are so good at sabotaging our decisions that I dedicated an entire chapter to them in my book, Waypoints.  What if there are cases, though, where cognitive biases actually help point you in the right direction? 

It is objectively difficult to defend the decision I made in May, in financial terms.  At my urging, my wife and I adopted two dogs, Mica and Apollo, from our local rescue organization.  We showed up to meet a young female, but didn’t have the heart to separate her from her brother, as they were the last two in their litter.  If it is hard to defend the cost of adopting one dog, it is twice as hard to defend what we did!

Pets rarely give a financial return on investment, but that is not why we adopt.  Amy and I have always had between two and three dogs throughout our time together, and they have given us an immeasurable “return on life.”  The dividends they pay out are moments of joy, personal comfort, and hilarity!  Of the things in life worth spending on, these are near the top of our list.

You may be asking, “What does this have to do with sunk costs?”  Well, we adopted the twins at around three months old.  By six months, Apollo was undergoing a life-saving surgery on his intestines stemming from a bout of canine COVID (no kidding).  While we were waiting for his diagnosis, Amy and I were already preparing ourselves for the worst.  When we were told what it would take to keep him alive, our answer was, “whatever it takes.”  We’d only known the little guy for a few weeks, but he was our responsibility now.  It turns out the mathematical formula for “whatever it takes” came out to roughly the financial equivalent of a year’s worth of mortgage payments.  We paid it.  Today, just a month later, our little guy is as good as new (shaved spots aside).

In Waypoints, I introduced a framework for making tough decisions, called the PRism PRotocol.  This involves looking through the filters of a person’s principles, priorities, and preferences to help choose a path forward.  Understanding what fits into each of these categories for yourself can make a tough choice far less so.

Before we visited the local dog rescue, Amy and I had a great deal of experience raising dogs together.  We had one at home, but knew we could handle three.  Deciding to adopt, and deciding to bring home one more than expected, were both a matter of preference.  We did view the expense, inconvenience, and long-term commitment of this choice through the lens of our priorities.  These include certain levels of comfort and financial security.  There was no meaningful conflict that would stand in the way of the adoption.

On the topic of finances, however, adoption fees and some kibble do not exist in the same economic universe as emergency intestinal surgery. In our initial decision to adopt, our preferences and priorities were aligned and easily managed. When Apollo’s crisis hit, those lower-tier considerations were instantly overruled by a non-negotiable principle: If you have the opportunity to save a life, you do it.

Strictly speaking, from a cold, algorithmic standpoint, spending a year’s worth of mortgage payments on a six-month-old rescue pup might look like the textbook definition of the sunk cost fallacy. Doubling down on a financial decision that offers zero monetary return may not “add up,” but lives aren't lived on a spreadsheet.

This is where a "cognitive bias" performs a quiet miracle. What standard economic theory labels as "irrational commitment" is often just another name for love, loyalty, and duty. When guided by a clear core principle, throwing "good money after bad" can be the correct decision. By traditional measures, Apollo may not be a great investment, but try explaining that to me when he’s asleep with his head in my lap, and I’ll explain to you the concept of return on life.