Imagine you had a chance to experience what it was like to build and

maintain the first supersonic airliner, the plane that traveled from London
to New York within three and a half hours instead of seven. It has
reached a speed of 2146 km/h, faster than a planet spinning.
Insane? It was. We are talking about the Concorde project.
In the following quiz, you will challenge your decision-making process
like the original Concorde creators: the British and French government
teams.
QUESTION
In your opinion, what was essential for creating the very
first supersonic airplane?
To have an insanely huge amount of money
New, complicated technology requires the best of the best,
including the brightest engineers, mathematicians, designers, pilots,
and managers — to create something that humankind had never
seen. So when Concorde had its first commercial flight in 1979,
French and British teams had already spent ≈$1.6bn on the project.
To dream big
To love what you do

Both teams working on Concorde knew that prohibitive cost overruns

had already plagued the project from the start. Initial estimates of the
project’s cost were around $86.8m, which far exceeded later on.

What could compensate for losses?

QUESTION
How do you compensate for huge expenses?
Fire highly-paid workers
 Use less innovative materials
Set higher ticket prices
With these expenses, tickets for Concorde flights couldn’t be
economy-class; the company charged $12,000 for the round-trip.
They included a unique experience with fancy dinners and pop stars
as neighbors.

High prices made Concorde flights less accessible. Moreover, due to

technical limitations, supersonic planes had fewer seats than average
transatlantic planes. Seems bad?
There was another challenge for the team — sound effects.

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In addition to all other problems, Concorde was loud due to its
supersonic speed.
QUESTION
What was the result of this?
Everyone wore earplugs
The company ignored this factor
The company cut flights over land
Only overseas flights for Concorde.

When the Concorde plane exceeded supersonic speed, it made

deafening booms that scared people. Therefore, planes could only do
cross-ocean flights.

Let’s sum up what the Concorde team had at that moment: high ticket
prices, a limited number of high-priced seats, expensive crew staff, and
a limited number of routes.
The project sucks out all the resources, making it impossible to gain
revenue.
QUESTION
What would you do as a Concorde manager?
Stop the project
Considering all the facts, it would be the most logical choice. Hard
but reasonable. However, it differs from what the Concorde team
did, as they prolonged their struggle to make the jet profitable for 27
years until 2003.
Destroy competitors
Rebuild the plane and make it bigger
Try to guess how much money was invested into the Concorde project.

The approximate amount of money spent on the Concorde enterprise

was $9.52bn. The French and British governments never made any
money out of it.
They could have stopped it much earlier but felt they spent too much to
stop. And it is how both teams fell into the sunk cost fallacy.

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The French and British kept spending millions of dollars on the project
because they had already spent too much. However, it wasn’t a rational
choice as it resulted only in even more significant losses. As a result, this
case became a worldwide famous example of the sunk cost fallacy.

The sunk cost fallacy is a tendency to continue with something

we’ve invested money, effort, or time into — even when the costs
already spent outweigh the benefits.

This cognitive bias makes us wrongly estimate the situation based on

what we have already lost rather than what we have now. This is why the
sunk cost fallacy is also called “throwing good money after bad”.

We can become victims of sunk cost while making important decisions.

That’s why it’s essential to understand what causes the sunk cost fallacy.
There are several concepts connected with sunk cost; let’s talk about a
few.
The first one is loss aversion.

Loss aversion is a tendency to fear and avoid losses. It occurs

because the idea of losing is more psychologically powerful than
the idea of gaining the same amount.

In the case of the sunk cost fallacy, loss aversion makes us continue with
poor investments because we don’t want to feel bad about losing. This
avoidance was the case with the British and French governments, who
kept investing in a hopeless concept.

The second concept that plays a role in sunk cost fallacy is framing.

Framing effect occurs when people choose options based on

whether they’re positively or negatively framed.

In Concorde’s case, overall success would mean finally making the plane
profitable, no matter how much money was spent before. While stopping
the development feels like a failure, the decision to stop was the only
logical choice.
Another part of the sunk cost fallacy is unrealistic optimism.

Unrealistic optimism occurs when we believe something bad is less

likely to happen to us than to others.

In the case of sunk cost, the sense of unrealistic optimism makes us

overestimate our winning chances and underestimate our losing odds.
And the two other emotions that nourish our desire to keep investing in
helpless projects are fear of appearing wasteful and a sense of
personal responsibility.
We often continue with our poor projects because to stop them would
mean throwing all the resources down the drain and appearing wasteful
and irresponsible to others.

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Let’s see if you understand the concept.
QUESTION
In which of these situations does the sunk cost fallacy
occur?
You deposit $200 in the bank over one year, with a low
percentage program.
You quit an expensive course in the middle.
In the middle of a film, you realize it’s bad, but finish it anyway.
In this situation, the time you spend on the film would be a sunk
cost, while your decision to continue watching is a sunk-cost fallacy.

So how do you avoid falling into the trap of sunk cost?

Knowing all the concepts that could lead you toward the sunk cost
fallacy is a good first step to avoiding it. So every time you need to make
a decision, check for cognitive biases and ask yourself these five
questions:
• What are my definitions of failure and success in this situation?
• Is there anything I’m afraid to lose?
• What are the chances that my effort will be successful?
• Am I afraid of appearing careless to myself or others?
• What advice would I give to a friend in my situation?

Before you start something new, such as a project, or relationship,

identify the goal you want to achieve as clearly as possible. In the future,
if your project isn’t meeting its goals, you have a reason to change your
path or move on based on data.
QUESTION
What effect should the sunk cost have on the decision-
making process?
 Significant
Moderate
No effect at all
Your ideal situation happens when your final decisions are in no way
affected by your sunk cost.

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Things to remember:
• Sunk cost fallacy is a bias that keeps us continuing with a project even
when the results are not worth the effort.
• Sunk cost is not just money but also time, effort, and materials.
• Sunk cost resources can’t be recovered.
• We can only identify the sunk cost after losing resources.
• Don’t base your decisions on sunk cost.

Finish