According to a study by Stanley Milgram, individuals will, at their core, do what they believe is the right thing. This can be seen in many different facets of life- from the social experiment that he conducted with his wife’s friend, to when people are faced with a decision involving money and time.
In this blog post we’re going to talk about something called “The Sunk Cost Fallacy.” The sunk cost fallacy is a logical error in which someone regards the past costs of an activity as relevant to its value. They will continue doing something that they believe has little or no chance of success, even though stopping it might be less costly and more productive.
This theory emerged from people’s tendency to keep investing into things with negative expected returns because they have already invested time, money or effort into them- regardless if their initial investment was big or small. It sounds counterintuitive, but it makes sense when you break down what happens when we are confronted by this decision: The pain of financial loss increases our appetite for risk; while the pleasure derived from these investments decreases over time. So rather than continuing on this path.
