Sunk Costs: Learn to Let Go

We lawyers pride ourselves on our analytical and people skills, although it’s possible for a lawyer to be self-confident without good reason.

But even if we possess the skills necessary to lawyer well, we are still subject to falling victim to emotion when pure, clinical logic is called for. Specifically, we will often make bad choices or continue down the wrong path because we (without realizing it) do not want to confront the fact that we have lost something that cannot be recovered.

This is known as the “Sunk Costs Fallacy.” And it can not only hurt your career, it can ruin your life.

Clinging to spent money

The Sunk Costs Fallacy is simple to describe and difficult to detect in our own behavior. When we have spent (or committed to spend) money or time on a particular item or effort, we have emotionally attached ourselves (and our happiness) to that transaction.

If we then realize that the transaction cannot provide the return we expected or hoped for, we are hesitant to simply walk away. We will even senselessly spend more time or money on the same object or effort (rather than wisely take our losses), sometimes in the vain hope that we can recoup what has been lost or somehow mitigate the loss. “Sunk Costs Fallacy” is a scientific name for what used to be called “throwing good money after bad.”

David McRaney’s terrific blog You Are Not So Smart, which I found thanks to DuckDuckGo, has a great post that describes research on the Fallacy:

Imagine you go see a movie which costs $10 for a ticket. When you open your wallet or purse you realize you’ve lost a $10 bill. Would you still buy a ticket? You probably would. Only 12 percent of subjects said they wouldn’t. Now, imagine you go to see the movie and pay $10 for a ticket, but right before you hand it over to get inside you realize you’ve lost it. Would you go back and buy another ticket? Maybe, but it would hurt a lot more. In the experiment, 54 percent of people said they would not. The situation is the exact same. You lose $10 and then must pay $10 to see the movie, but the second scenario feels different. It seems as if the money was assigned to a specific purpose and then lost, and loss sucks.

Throwing good time after bad

The Fallacy also works in situations much more important than those involving the loss of a movie ticket. We can become emotionally invested in relationships with clients, other lawyers, or friends or lovers to the degree that we can fail to see that the best choice is to end that litigation, friendship, or relationship.

The ability to step back and see the big picture without the distorting lens of emotion is a key to good lawyering, and good living.

(photo: sinking ship in the sea from Shutterstock)

  • http://www.PAinjurycase.com Dave S

    Wow, that is deep thought. On contingency cases, there’s to me a big difference between before and after suit is filed. If you are not yet in suit, have spent time and money (costs) to investigate and in so doing determine it’s not a viable case for the client, then it’s not tough to let go and eat the costs and time. But, if you’ve already filed suit, that’s a different problem. At that point, unless it’s clear there is no case, you are pretty much stuck with litigating it and just do the best you can for the client.

    • http://lawyerist.com/author/andymergendahl/ Andy Mergendahl

      That’s an interesting distinction. I’m not a civil litigator; I understand there are fees to file a lawsuit, but I’m guessing there are other reasons you feel you need to keep going after filing a contingency-fee case. What are those?

  • JD

    You also need to be wary of the converse of the sunk-cost fallacy: the Dollar-Auction Paradox. I’m too lazy to explain it so check it out here: http://en.wikipedia.org/wiki/Dollar_auction

    The fact that you’ve sunk $100K into a case should not, by itself, motivate you to keep throwing good money after bad. But neither should it compel you to “stop the bleeding” where a marginal investment still offers a positive expected return. If spending $25K on the appeal offers a 50/50 shot at a $75K fee, you should do it, even if you’ve already lost your shirt on the case no matter what happens. The only way to “win” the dollar-auction game is not to play, but in litigation you don’t always have the luxury of recognizing one before the bidding is well underway.