Saturday, April 2, 2011

Sunk Cost Fallacy: How Companies Sell Using Your Emotions

 haha get it? Sunk Cost. Yeeaaahhh.

What is "sunk cost" and the "sunk cost fallacy" exactly?
 

Well, literally a sunk cost is an expense that has already been made and cannot be recovered.

Basically money you spend that you cannot get back.
 

The sunk cost fallacy is basically a play on your emotions. You pay for something you either didn't want in the first place or found out after the purchase that you didn't want it after all, but still use the service simply because you paid for it. You feel you are emotionally tied to the purchase because you paid for it and feel the money would go to waste if the service goes unused.
 

Lets say you spent $90 on a non-refundable ticket to a concert only to find out shortly after that everyone who goes to the concert gets punched in the face upon entering the venue. However, despite the imminent fist-to-face you still attend because you feel emotional about the thought of wasted money.
 

While this fallacy is usually at fault of the customer, some companies actually abuse this technique to drive sales.
 

Farmville has to be one of the most prevalent. Everyone knows that game is horrible, yet they have millions of daily players! Why? Because the people who are already playing feel that have invested to much money and time into the game to stop now. Simple, yet horrifically affective.
 

World of Warcraft may have a similar affect on some of its users. Yes, you. The kid who spends his life savings on WOW to finally get that epic mount. You're being shafted. Unless you actually enjoy it, which you probably do.
 

Crazy concept, but it's the world we live in.
 

Can you think of an example of the sunk cost fallacy? Tell me below!


42 comments:

Claude said...

Haha, I like the example you gave of the concert, and I think I'd still go regardless of the punch in the face.

Signing up to a Gym using a discounted sign up fee, and continuing with the monthly payments even though you have a better option? I don't know maybe.

psyke said...

I've been in that WoW boat. I'm really glad I got over it.

MrBunni said...

I stopped playing WoW , that's a relief but i still spend money on things that I probably shoulnd't :(

Tibble said...

Erugh, I think everyone knows the sunken treasure chest of the gym

mac-and-me said...

interesting read

BTN Hip Hop said...

interesting concept, i feel the last bit about wow really highlights the point.

Rasslin' and MMA said...

Really interesting. Id love to see more blogs on concepts like this.

I think the Sunk Cost Fallacy rings truer depending on how cheap you are. HA!

CandleintheDark said...

This is very interesting. I do know that they put a lot of money studying this sort of thing

Danny Murphy said...

Good read mate, very interesting

Banacek said...

I've seen guys do the same thing with women. They are a poor investment.

King Elysium said...

i hate wow

Michael said...

Buying beer is sunken cost fallacy! But taste is awesome :3

Leestander said...

Farmville is stupid.. dont like it at al..

Clueless Dolphin said...

awesome, thanks for the tips

cool_cicler said...

Very good point, never thought about this issue from that angle. Real good information. Thanks

Randy truckguy! said...

good to know

bloodthirsty174 said...

I think anything with a membership is going off the sunk cost fallacy, and can sometimes even be a good motivator for people. For example, gym membership. one day youre feeling really healthy and you get a membership to a gym, then for the rest of the month you feel like you have to go because you already bought it.

Mr. Dough said...

You've a very interesting blog. I'll be following this. Insightful post!

TheMonopolyGuy said...

Psychology is the most important factor in life, really.
If you can manipulate people you are god

Pentele said...

I hate wow and farmville, they're such a waste of time and resources.

Azurikai said...

^^^ agreed Pentele

Trelin said...

A better example would be buying one product, lets say a mac computer, and then realizing you're going to need to buy lots of addons to get it to do what you want and, instead of just cutting your losses and buying a windows computer, you buy the addons that may even cost more than just purchasing a new windows pc just because you've already sunk the costs into a mac.

ChicagoTaste said...

I'm so glad I stopped wasting money on WoW and farmville. I feel like so many people wasted so many hours of their lives on those.

Sam said...

Very educational, thank you for posting this!

POP! said...

I am thankful I don't get sucked into games like these :)

freddieblue1 said...

i wish i never got into wow, stopped now though

Jay.CA said...

interesting concept.

JapRoulette said...

Haha that's an intersting theory

Eric P said...

People who eat until sick at an all-you-can-eat buffet. That is a sunk cost fallacy. They think they have to eat more than they normally would because they want to get a deal on food. Think eating a large pizza because they gave you a deal to make it cost the same as a medium.

ExoticBlogger said...

wow that's interesting..

Kicking Rocks said...

great post

Dazza said...

interesting, ill keep that in mind from now on

Checkered Little Shoe said...

great point. ^_^

ed said...

i never played farmville or wow, big time consumers i heard

izzfoshizzz said...

lol that sucks. i dont have money so i have to make every purchase count haha

Fishy Corporation said...

Nice text man :)

Elliot MacLeod-Michael said...

not off the top of my head, but i definitely feel like that's been done to me before. and also i have for sure been the victim of planned obsolescence.

gman said...

when I took a a particular economics subject, one of the first things they taught us is to ignore sunk costs. Just pretend they don't exist. It's hard to do but in the long run it can save you a lot of money and heartache.

Nick said...

I have specifically factored the sunk cost fallacy into two important decisions in my life:

The first was when I dropped out of law school. I had already paid for and completed two years, and even though I was miserable and didn't want to be a lawyer anymore, felt compelled to stay one more year and finish. But I was able to step back and objectively decide there was nothing about the 'invested' time and money that informed future decisions and prospects. I have been exponentially happier since leaving law school.

The second was, as you mentioned, quitting World of Warcraft. That game and many like it simply play on addictive psychology. And I'm even happier now that that's behind me.

Asty said...

marketing genius, at its finest

Xuian said...

here's a good example. Pot commitment in poker. If you've already invested 1000$ into a hand and your opponent asks you to invest another 100$ into the hand, and you know you are already beat, you still have to play it because you are invested )

Brock said...

Luckily I've pulled away from farmville, I don't even know why I ever played that stupid game, days wasted :(

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