Don’t Go Down With the Ship: How to Avoid Sunk Cost Thinking
Posted on March 10, 2012
A classic lawyer’s mistake – to keep fighting because we’ve already been at it for so long, invested so much money, and therefore can’t let go. This is the hallmark of the sunk cost fallacy: our tendency to believe something merely because we’ve devoted time, energy or money to it. Otherwise known as the “Concorde Fallacy,” after the infamous airplane manufacturers who realized before the jet ever took off that it would lose money, but nonetheless finished production because they had already devoted millions to planning, design, and construction.
Similarly in litigation, where investments of time and money grow exponentially as our case progresses, the tendency to “stay the course” is convincing – but often irrational. We fail to evaluate based on our current and cumulative knowledge of risks and benefits. Instead, we irrationally focus on the costs we’ve already sunk into the case, telling ourselves that we wouldn’t put so much of ourselves into a case that doesn’t justify the expenditure, would we?
Yes, we would. And often. We lawyers hang onto losing cases and failing client relationships by concocting rational reasons to justify beliefs and behaviors in which we’ve made sizeable investments. The basic fallacy is that past investment should not necessarily influence future decisions. If we were rational, we would compute the odds of succeeding from each point forward and decide if more investment warrants the likely payoff. But we are not rational.
We can’t avoid sunk cost thinking. We all like our bets more after we’ve made them. We lawyers like our cases after we take them on, work them up, and commit to them. It’s a predictable feature of our mental life as lawyers. Our professional obligation to the client can intensify the effects of sunk cost thinking. But the effects can be insidious – and costly for both the lawyer and the client. The best guard against the influence of sunk cost thinking is the advice of independent, fresh opinion at regular intervals. For lawyers that means looking to peers, colleagues or experts with no prior investment to assess the likelihood of success. We should not tell the outside, independent expert how much time, money or ego investment we’ve made. These factors simply aren’t relevant to predicting success, no matter how much or how many of them we’ve already poured into our case. By tabling these irrelevant sunk costs, the independent opinion we seek – as much as we may not want to hear it – may very well save us from going down with the legal ship.