Recently I enrolled in a Bootcamp, which I had thought would help me achieve one of my career goals. Few weeks into the program and after I had paid a large sum of money, which was non-refundable, I realized It was not going to help achieve the career goal that I had intended and coupled with my hectic work schedule. It was not easy pulling the plug on the program, even though I had invested a large chunk of money, but I had to for the sake of my sanity & save money, time, and energy.

In retrospect, it was not a wrong move to leave the program as I was able to use that time for some other activities such as writing some IT certifications. I had to think of the trade-off I would be making vis a vis my career goals.

The Sunk Cost Fallacy is the tendency to continue to sink money, time, or effort into an activity/project we know is not going to give us our expected result. We continue these resources imply because we have already incurred a cost (sunk), which cannot be recouped. We place more value on the project based on how much we have already invested rather than the real present value.

The sunk cost is very pervasive in every area of our lives as we continue to spend money, time and effort in abusive relationships, loss generating business, viewing boring movies or sports games, nonproductive dating/marriage, or even schooling and career choice. There are lots of examples of the sunk cost in the business world such as Concorde, Google Glass, Microsoft Zune among others.

Here are some examples of the sunk cost fallacy:

Challenge the belief that the selection of a candidate for promotion should be based on their performance in their current role, rather than on their ability relevant to the intended role.

The Peter principle is a concept in management developed by Laurence J. Peter, which observes that people in a hierarchy tend to rise to their “level of incompetence”: an employee is promoted based on their success in previous jobs until they reach a level at which they are no longer competent, as skills in one job do not necessarily translate to another. 

The Peter principle states that a person who is competent at their job will earn promotion to a more senior position which requires different skills. If the promoted person lacks the skills required for their new role, then they will be incompetent at their new level, and so they will not be promoted again.

But if they are competent at their new role, then they will be promoted again, and they will continue to be promoted until they eventually reach a level at which they are incompetent. Being incompetent, they do not qualify to be promoted again, and so remain stuck at that final level for the rest of their career (termed “Final Placement” or “Peter’s Plateau”).

In a Hierarchy: Every Employee Tends to Rise to His Level of Incompetence