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Thinking about thinking


Sunk cost fallacy, plan continuation bias and the IKEA effect


The fifth in a series of articles where Whitianga resident, Max Ross, is exploring the way we think.


A fallacy is an incorrect way of thinking and is very similar to a bias. The “sunk cost fallacy” is our bias to keep going once we are invested in something, even if it no longer makes sense to continue.

When investing, it is really easy to get caught up with shares in a losing company. When making the decision to sell, the fact that we have already lost $100 makes it harder to decide to sell the shares, when it would be much more logical to sell those shares and invest the money in a company that is doing well instead. When deciding to continue with a poor course of action, or working out what to do next, it may help to remember the “sunk cost fallacy” and look at what the real costs of your decisions are.

A related concept is the “plan continuation bias”. Once a plan has been started or a course of action has begun, it is much harder to stop. It is a deep-rooted tendency of people to continue their original course of action even when changing circumstances require a new one.

The plan continuation bias has been responsible for a number of aircraft and boating accidents. The pilot or skipper has decided that this is what they are going to do and then when conditions change such as the weather, they find it hard to change the plan. In a NASA study of aeroplane accidents, plan continuation bias was the most common factor in the 19 accidents studied. What plans or courses of action are you continuing on just because you have started them in the past?

The “IKEA” effect is a similar bias where we put more value into the things we have at least partially created. In a study, half of the participants in a group were asked to assemble some furniture. All the participants were then asked what they would be prepared to buy the furniture for. Those who built the furniture valued it 63 percent more than those who did not.

In another study, a number of women were invited to join a group. Some of them had to complete mild initiation tasks before they were allowed to participate, others, severe initiation tasks and the remainder, no tasks. When asked to rate the value of being in the group, those who did more initiation tasks valued the group more highly than those who did not.

Understanding this bias can help you avoid valuing things more than you should, and being manipulated by designers and advertisers.


Pictured is Whitianga resident, Max Ross, is the author of the “Thinking about thinking” series of articles.

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