Why Quitters are Winners: Break Free From the Sunk Cost Fallacy

Read time: 5 minutes

You're at home, cozy on your couch, and you've just shelled out $5.99 for a movie rental.

You excitedly hit play, eager for a cinematic delight. However, 37 minutes in, it becomes glaringly obvious – the movie is dreadful. But instead of switching to watch something else, you continue reasoning that you must watch it to justify the expense.

This seemingly simple example is all too common.

Because you’ve invested money and time, walking away feels like a waste.

This scenario illustrates a widespread mental trap known as the "Sunk Cost Fallacy." It’s the tendency to continue with something that we have already committed money, time, or effort into, even when the alternative decision is better.

Here’s a significant truth: sunk costs get in the way of making better decisions.

The movie scenario above is probably not a big deal.

However, it happens to you much more than you realize. We hate to let go of the money, time, and effort we expended – but the truth is these costs are gone.

And while these “sunk” costs shouldn’t cloud your judgment, they do – leading to irrational and poor decisions.

Let me share with you another example, this time with higher stakes:

Mark was the embodiment of determination. He had devoted years of his life to pursuing a Ph.D. in engineering. He had dedicated countless hours to lab research, late nights reading academic journals, and invested heavily in coaches and programs. Mark was on the verge of achieving his doctoral degree, and a bright future in academia awaited him.

Mark couldn't help but contemplate his choices. Becoming a part of academia had been the focus. And his family had supported him along this journey. However, another path with potential was there waiting – entrepreneurship.

Mark realized he was at a crossroads. His pursuit of a Ph.D. had been challenging and impressive, and a career as a distinguished professor seemed to be well within his grasp. But the entrepreneurial venture that enticed him with the potential for innovation and impact couldn't be ignored.

But Mark couldn't ignore the "sunk costs" – the years of hard work in academics and the expectations of those who had supported his scholarly pursuits. The idea of steering away from his established academic path was intimidating.

• How would his mentors react?

• How would his family (who had taken pride in his academic excellence) react?

• Would he be seen as someone who couldn't commit?

The driver of a decision should be based on the future value, not the cost of giving up past progress.

Abandoning a project after committing to it will likely cause negative feelings of guilt and wastefulness. Since we want to avoid feelings of loss, we are likely to follow through even if it is not in our best interest.

• In Business: Holding onto failing projects just because you've already spent a lot of money on them can lead to huge financial losses and missed chances.

• In Personal Finances: Sticking with investments that aren't doing well can make it harder to grow your money and be financially secure.

• In Time Management: Keeping up with things or relationships that you don't really like anymore just because you've already spent a lot of time on them can stop you from growing and being happy.

• In Relationships: Staying in bad or unsatisfying relationships because you've spent a lot of time in them can make you unhappy and stop you from finding better ones.

Ditching sunk costs requires bravery.

There are 3 common mental biases that reinforce sunk cost: loss aversion, anchoring, and endowment effect.

These psychological forces make it harder for you to let go.

• Loss Aversion: Our brains are wired to hate losses more than we love gains. This means you’d have greater emotion about losing $100 than winning $100.

• Anchoring: Initial investments, be they financial or emotional, can create a psychological anchor, making it agonizingly difficult to veer away from our original plans.

• Endowment Effect: We tend to overvalue what we already possess. When faced with the prospect of letting go, our emotional attachment to what we own clouds our judgment.

Sunk costs are not only economic costs; they are emotional costs.

• What will you tell the people who have supported you…and now going to do something different?

• Who are you (you once did this, and now you’re going to do that)?

• How can anyone believe you are moving forward after you’ve given up everything to change direction?

Winners quit – when the alternative is a better option.

Winners quit all the time because they know there are limited resources.

They quit everything that holds them back from their important work. They have the guts to invest in a few things deeply.

Because to become the best in the world, you need to quit a lot of things (but just not too early)

How Can You Use the Sunk Cost Fallacy to Your Advantage?

The easiest answer is to be unemotional about decisions, but we cannot completely divorce ourselves from emotion.

Simply being aware of the sunk cost fallacy gives you the ability to train yourself to identify sunk costs in your decisions. Even if you cannot fully escape them, you can keep it top of mind. And by doing so adds a bit more clarity to the decision-making process.

You could also consult with objective advisors who are not emotionally invested in your decision. Friends, family, coaches, and mentors are a start. Often times we are likely to listen to others more than ourselves.

I like how Seth Godin reframes it.

Think of sunk costs as a “gift” from your past self to your current self.

Ask yourself, “Do I want the gift?”

It's easy to decline a gift when you know the future costs and understand that your alternatives are better. Economically speaking, it doesn’t matter how much it has cost us to receive the gift from our past self. It should have no bearing on how we spend our future time or resources.

While it’s hard to turn down a gift, sometimes you must.

The most courageous decision is to let go, clearing space for the alternative.

Reconsider the next time you tell yourself, “You can't quit now; you've invested so much."

Walking away is not defeat.

It’s a new decision.

To close the story from before -- I was Mark. The circumstances and the details are a bit different, but the sunk cost fallacy weighed heavily on the decisions. Here are the highlights:

• For 2.5 years, I diligently attended classes (after work) at Harvard’s extension school to earn a master’s degree in legal studies. I invested in late nights and weekends to learn about the law to support my financial background. My plan was always to build a well-rounded knowledge and stack skills. All I had left was my thesis project…1 year left.

• Plus, the 7 years of hard work to earn the respect of my colleagues. I quickly climbed the ladder -- building a wealth of institutional knowledge and credibility in the process.

A successful career path was clear, but the urge to start my own business weighed heavily.

I remember thinking:

• Based on who I am now and what I know now, does pursuing this second master’s align with my real aspirations?

• Should I really be throwing away all the goodwill and credibility I’ve earned to start over?

• Do I believe the entrepreneurial option provides greater future benefits?

• Am I running from something or running toward something?

I made my decision.

I quit.

I ditched the sunk costs and started a business.

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Welcome to Impact Thinking.

Hi, I’m Peter. I quit my highly-regarded, 6-figure job at Harvard to build a strategy consulting company in 2019.

Hard work is a respectable characteristic, but it’s limiting.

You need leverage and impact to punch above your weight class. And I’ve seen first-hand that thinking is the greatest form of leverage.

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• Ditch overcomplicating decisions

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