Let’s say you’re compelled to pre-order a game, maybe because the cashier at GameStop got you in a head lock and wouldn’t let you out until you agreed to. So you put down $10 towards Game A and go home, vowing to work out more so this kind of thing doesn’t happen again.

Weeks later when Game A is released, you consider whether to trek down to the store and pay the balance on your pre-order. The thing is, you’ve heard nothing but bad word of mouth and scathing reviews about the game, with one of your favorite podcasts going so far as to say that the developers should be held subject to Megan’s Law. On top of that, you’ve got a lot of other unfinished games in your backlog that you’d frankly rather spend more time with. But, thinking of that $10 nonrefundable deposit you already put down on the game, you decide to pay another $50 to do something you don’t really want to do.

What? Why? Why would you do that?

The answer is a phenomenon that psychologists, economists, and other raving lunatics call “sunk costs,” and the situation described above is a “sunk cost dilemma.”¹ Sunk costs are past expenses that can’t be recovered, like a $10 non-refundable, non transferable pre-order deposit. In a purely rational, economic model of decision-making sunk costs should not factor at all into any future decisions, like whether or not to pay the balance owed on Game A when it’s released. The money is spent, no matter what, so it’s moot.

But that’s not how people’s brains are wired. Most of us would say, “No way! I’ve put $10 towards that game and I don’t want to just lose it!”² But playing that pre-ordered game has no value to you, you’re just going to be throwing good money after bad. This is even more irrational when we could put remaining funds towards something else that actually has value to us, like another game that isn’t terrible.

Besides helping them plan inventory and the ability to invest that $10 you gave them, this is the big reason why retailers want you to pre-order games and will give away freebies to get you to do it: you’re as good as locked in for another $40 to $50 even if advance word on the game says it’s a bomb. Most people can’t help but honor those sunk costs even when they’ve got better things to do with their money.

And you want to know the really insidious thing? Sunk costs continue to dog us even when we’ve put the pound in after the penny. Ever feel compelled to see a game through to its completion or spend some more time with it even though you’re not enjoying it but you feel like you have to justify spending money on it? That’s totally sunk costs at work on you again. But you keep playing because you figure it’s not THAT bad. Robyn M. Dawes even describes in his book Rational Choice in an Irrational World⁴ how this is pretty much the same logic that a heroin addict would use to avoid treatment before reaching rock bottom. Yeah. Think about THAT.

Footnotes:

1. Arkes, H. R. and Blumer, C. (1985). The psychology of sunk costs. Organizational Behavior and Human Performance, 35, 129-140↩
2. This also ties into another phenomenon called “loss aversion” but I’ll talk about that elsewhere↩
3. Photo credit to suburbandollar on Flickr↩
4. Dawes, Robyn M. (1988). Rational Choice in an Irrational World, Harcourt Brace Jovanovich.↩