Sunk Cost Fallacy: Art and Economics

In the field of economics, sunk costs are costs that have already been incurred and cannot be recovered. These costs can be investments in time and/or money.  The Sunk Cost Fallacy, on the other hand, is a mistake in reasoning in which you only consider the sunk costs of an activity when you’re trying to decide whether or not to continue with the activity. In other words, you’re thinking retrospectively (in the past) rather than prospectively (in the future).

Here are a couple of statements you might hear people in the workforce say who have fallen for the sunk cost fallacy trap:

Statement #1: “Even though this business isn’t making any money, if I sell it now, all of my time and efforts would be wasted.

Statement #2:  “I’ve already put in 5 years as an associate in this law firm if I leave before I make partner, that will be five years down the drain.

So I think you can begin to see the pattern of thought of people grappling with costs—whether it time, emotional, or financial—that can’t be recovered.

As a musician, thinking about artistic sunk costs constantly gets in the way of making good creative and career decisions. Think of how many times we’ve insisted on using a certain section of a tune that didn’t quite work, simply because we've already invested time in writing it. Or how we’ve continued using a certain player in our group whose not quite working out, simply because we’ve already rehearsed with him or her.  And the one none of us wants to confront: Putting out that recording, not because we like it, but because we’ve already spent a lot of time and money making it.

And this, ladies and gentlemen, is sunk cost fallacy. Let me also add that the one thing that all three scenarios have in common is that in the end, nobody wins.

First of all, having members of your group play material that they can’t sink their teeth into can  be uninspiring, and consequently, can result in a poor performance. This is a drag, not only for the members of your band but the audience members that have paid money to hear you. Secondly, continuing to use someone who's not working out in your group, simply because you’ve already rehearsed them, is harmful to your music and to the person you’ve hired, since they cannot be a positive contributor to the situation. Thirdly, releasing a recording, not because you like it, but because you’ve spent money and time recording it, hurts because, now, you have to devote six months to a year of your life, promoting something you don’t like, instead of creating something different that you do like.

The most difficult time in my life  when I've had to wrestle with my artistic sunk costs was when I stopped playing the tenor saxophone to begin focusing on the soprano.  As you can imagine, I had been a tenor player for around 16 years. So talking about time invested. 

But it seemed silly to continue down a path simply because I had invested many years pursuing it. And what kept me from falling into the sunk cost fallacy trap was instead of thinking about what I would lose, I thought about what I would miss out on by not pursuing this different path--something economists call opportunity cost.

On the topic of opportunity cost, economist David R. Henderson writes:

When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you cannot spend the money on something else. If your next-best alternative to seeing the movie is reading the book, then the opportunity cost of seeing the movie is the money spent plus the pleasure you forgo by not reading the book.

In my case, I thought the opportunity cost of continuing to play the tenor saxophone was not being able to find my own voice on the soprano.   Every moment I spent pursing tenor-saxophone-oriented goals, was time taking away from me not being able to pursue soprano-saxophone-oriented goals.

More simply put: The question was not whether I could afford to abandon the tenor, but whether I could afford not to.

In more recent times, I find myself weighing the opportunity cost of playing other people's music--especially since what I do is so specific.  And this is something that creates a lot of conflict with me. Because on one hand, I like the connection aspect of working with others and it does give me another perspective and a different set of challenges. But the fact of the matter is that this is valuable time I could be developing my own thing. So being a successful and active freelancer does have significant opportunity costs.

In conclusion, I just wanted to say that the reality of the situation is this: No matter what path you find yourself on; no matter how much time you invest in an idea, only to find yourself having to later abort it; no matter how much money you spend on something only to find that you can’t use it; the one thing that you will bring away from all of these situations will be the experience. No value can be put on this.  Experience is a gift to you from life. In the end, nothing is actually in vain. It's all about having the proper perspective.

Worrying about wasted time, is a waste of time.

It's ALL good!