Learning to let go (a trap for frugal people)

One of the most annoying psychological traps out there is a tendency to double down on decisions that aren’t working out. It feels bad in the moment, it feels worse in retrospect, and it drives our friends nuts.

Regina George in the film Mean Girls delivers the iconic line “Stop trying to make ‘fetch’ happen.”

The desire to “make it work” because we’ve already put in so much has us wasting our time energy and goodwill on people, jobs and other organisations that do not deserve it and throwing good money after bad.

Ever read a story about a six-month-marriage where one partner only went ahead because the big expensive wedding was all arranged? Cringe! Yet it happens. Why? Because “We’ve come so far we can’t back out now.”

Yes, yes you can!

This phenomenon is the sunk cost fallacy. A cost you can never get back is a sunk cost (all time wasted is a sunk cost). The sunk cost fallacy is when we make the sunk costs a factor in our future decisions, instead of purely looking at the future costs and benefits. The sunk cost is irrelevant, what’s gone is gone.

Some reasons why we end up falling for the sunk cost fallacy:

• Pride - we try to style it out - “No, I love my (expensive but impractical) marble kitchen work surface! Sorry, please don’t put the turmeric down there… or there…”;

• A sense of responsibility - “Others have put their trust in me, they will feel bad if we don’t finish what we started”;

• We look at what we’re getting compared to what we paid, when we should just ask “what is this worth to me now?” This happens a lot in investing, people resist selling underperforming shares because they don’t like having made a lost compared to the purchase price.

• Over-optimism bias - “We can make this work!”

• Hatred of waste - to cut our losses is to admit we have made a wasteful decision.

If you’re a frugal type, that last one is the killer. It’s easy to keep doing something inconvenient, boring, tiresome etc because you don’t want to have wasted your money and efforts so far. Realising that you’re better off admitting to the waste and finding ways to avoid it in future is a huge relief but it can be an emotional struggle to get there.

One way to get around the sunk cost fallacy is to imagine someone else had paid the cost. We can ask ourselves, “What would I say to a friend who was in this position?” (Honestly, this is in the top three clarifying questions of all time.)

I’m deeply grateful to my late great aunt Sonia (great as in “fantastic” as well as in “my mother’s aunt”). When my sister and I were in our early teens she took us out to a West End play. We stood up at the interval and she turned to us. “Well, that was boring,” she said, “Let’s go for dinner.”

So we did.

We didn’t stay because “otherwise we’d waste the cost of the tickets” that money was already wasted. We left because staying would also waste the rest of the evening.

Now I always walk out of boring entertainments, and I always raise a mental glass to Auntie Sonia as I do. I encourage you to do the same.

We also did an episode of Squanderlust on the sunk cost fallacy.