Defining the Sunk Cost Fallacy

Have you ever bought a pair of shoes that never really fit, but you kept wearing them in hopes you’d break them in? All because you didn’t want to feel your money had gone to waste—even as you felt blisters forming?

In this episode of Choiceology with Katy Milkman, we explore how focusing on past, irrecoverable costs can skew our judgment and future commitments.

Bill Kolb takes us inside the Evergreen Aviation & Space Museum in McMinnville, Oregon. He shares the story of “The Spruce Goose” seaplane and why its creator, Howard Hughes, was so committed to the project despite many challenges and several opportunities to back out. 

Next, Katy speaks with Richard Thaler, economics Nobel laureate and Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business. Thaler reveals why we tend to dwell on sunk costs that cannot be recovered and shares insights from his updated book The Winner’s Curse: Behavioral Economics Anomalies, Then and Now.

Check out the additional papers mentioned in this episode: “Paying Not to Go to the Gym” by Ulrike Malmendier and Stefano DellaVigna and “The Realization Effect: Risk-Taking After Realized Versus Paper Losses” by Alex Imas. 

Choiceology is an original podcast from Charles Schwab. For more on the show, visit schwab.com/choiceology.

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Important Disclosures

The comments, views, and opinions expressed in the presentation are those of the speakers and do not necessarily represent the views of Charles Schwab.

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All corporate names and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security. 

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Investing involves risk including loss of principal.

The books How to Change: The Science of Getting from Where You Are to Where You Want to Be and The Winner's Curse not affiliated with, sponsored by, or endorsed by Charles Schwab & Co., Inc. (CS&Co.). Charles Schwab & Co., Inc. (CS&Co.) has not reviewed the books and makes no representations about its content.

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