Nudge Wiki

Concept

Sunk Cost Effect

Also known as: Sunk Cost Fallacy

commitment motivation retention

Once people have already invested time, money, or effort into something, they're more likely to continue rather than abandon it — even when the past investment is, rationally, irrelevant to the decision of whether to continue.

Nathalie Nahai gives two examples. Gym-goers who pay monthly rather than annually attend more consistently, because the recurring charge repeatedly reminds them of an ongoing sunk cost they don't want to have "paid for nothing" (drawn from Phil Barden's book Decoded) — the academic source for this claim is the Gourville Soman 1998 Gym Payment-Frequency Study, cited independently by Richard Shotton in Episode 270. And the meditation app Headspace gives users 10 free 10-minute sessions, marking each with a completion tick and a congratulatory message tallying the total time invested ("100 minutes") at the end — increasing the likelihood a user then converts to a paid subscription, since abandoning now would mean writing off the effort already spent.

Distinct from, but often paired with, the Endowed Progress Effect: sunk cost keeps people going because of investment already made; endowed progress keeps people going because of progress they're made to feel they've made, real or not.

London taxi drivers and sunk cost (Episode 128): Tom Hutley notes that having invested two to four years (or, for some, up to a decade) into passing "the Knowledge" makes qualified cabbies place enormous value on their badge and profession, valuing the trade more because of how much was sunk into earning it, not because a GPS couldn't do the same job faster. A placebo-therapy study makes the mechanism explicit: overweight women were told an unpleasant, stuttering-inducing "therapy" (reading nursery rhymes aloud while hearing their own delayed voice played back) would help them lose weight; the therapy itself had no actual weight-loss mechanism. Half the group did the unpleasant task for 5 hours, half for just 15 minutes.

Result: a year later, the group that had sunk 5 hours into the pointless therapy had lost an average of 6.7 pounds; the group that sunk only 15 minutes had lost just 0.3 pounds — despite the "therapy" doing nothing physiologically, participants who'd invested more effort into it subconsciously justified that investment by actually changing their behavior afterward (see Sunk-Cost Stuttering-Therapy Weight-Loss Study).

Sunk cost can also work in reverse: visibly sinking effort into pursuing someone else raises how much they value the outcome (Episode 217). Steve Jobs waited unbid in Atari's lobby until he was granted a job interview, called an ad agency daily for a week until it agreed to work with unproven Apple, and called an IBM executive on three consecutive days until he released a prized logo designer to Jobs's new company — in each case, the visible time and reputational risk Jobs sank into the pursuit made the other party weigh him more seriously than a single, low-cost ask would have (see Steve Jobs Sunk-Cost Persuasion Cases). Agnew connects this to the labour illusion and Endowment Effect: visible effort raises perceived value whether the effort is your own or someone else's directed at you. The tactic is explicitly risky — it only works if the person can back it up with a genuine strength once attention is won (see Aronson Coffee-Spill Pratfall Study, Pratfall Effect).

The founding academic studies, applied to Amazon Prime (Episode 270). Richard Shotton cites Hal Arkes's 1985 research directly: a thought experiment where 54% of people chose a more expensive but worse ski trip over a cheaper, better one purely to avoid feeling they'd wasted the first trip's cost, and a real-world theatre season-ticket study where full-price buyers attended 25% more performances than heavily-discounted buyers (see Arkes Blumer 1985 Sunk-Cost Founding Studies). Shotton applies this directly to Amazon Prime: a study reminding customers of their prior £100 Prime spend made them 8% more likely to choose a pricier, slower Amazon option over an objectively better deal elsewhere (see Amazon Prime Sunk-Cost Loyalty Case), and a 2015 meta-analysis of 98 studies confirms the effect is robust across gambling, business investment, and consumer domains (see Roth Robbert Straus 2015 Sunk-Cost Meta-Analysis).

Discussed in

  • Episode 16 — 16- What makes a good website
  • Episode 128 — 128-how-black-cab-drivers-memorise-every-road-in-london
  • Episode 217 — 217-every-trick-steve-jobs-used-to-persuade-in-68-minutes (Steve Jobs's Atari, ad-agency, and IBM sunk-cost tactics)
  • Episode 270 — 270-why-we-re-irrationally-loyal-to-amazon-prime (Arkes founding studies; Amazon Prime case; sunk-cost meta-analysis; Gourville/Soman gym study cited)

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