how to avoid the sunk cost fallacy
the sunk cost fallacy can easily be overcome with mindfulness dedicate and thoughtful planning here s a few pointers on overcoming the mental challenge after trading for joey gallo the new york yankees outfielder struck out 194 times over 140 games instead of continuing to stick with their decision that didn t pan out as they d hoped the yankees traded gallo in august 2022 this is an example overcoming the sunk cost fallacy 2example of sunk costsassume that xyz clothing makes baseball gloves it pays 5 000 a month for its factory lease and the machinery has been purchased outright for 25 000 the company produces a basic model of a glove that costs 50 and sells for 70 the manufacturer can sell the basic model and earn a 20 profit per unit alternatively it can continue the production process by adding 15 in costs and sell a premium model glove for 90 to make this decision the firm compares the 15 additional cost with the 20 added revenue and decides to make the premium glove in order to earn 5 more in profit the cost of the factory lease and machinery are both sunk costs and are not part of the decision making process if a sunk cost can be eliminated at some point it becomes a relevant cost and should be a part of business decisions about future events if for example xyz clothing is considering shutting down a production facility any of the sunk costs that have end dates should be included in the decision to make the decision to close the facility xyz clothing considers the revenue that would be lost if production ends as well as the costs that are also eliminated if the factory lease ends in six months the lease cost is no longer a sunk cost and should be included as an expense that can also be eliminated if the total costs are more than revenue the facility should be closed 