ball with number lot - sunk cost fallacy

What is the sunk cost fallacy? And how does it affect you while getting your home organized?

Imagine you’ve just won the lottery. Think about all the things you could buy! New shoes, handbags, go on extravagant trips to Brazil with all your friends, or buy a brand new Tesla Model S Plaid Plus and, well shit, you might as well get the model X while you’re at it.

But, we both know you’re smarter than that, you would instead invest that money so you could grow it into more. Next steps? Go out and find places to put your money to work. One day you meet the owner of a new up-and-coming restaurant that is definitely going to make it big, it’s pretty much a sure thing! So you talk numbers and you could 5X your investment in 10 years, you like the idea of that and decide to make an investment of 5 million dollars.

After about 2.5 years the restaurant isn’t doing so well and is losing money every day. The owner comes back to you and asks for another 2.5 million to keep going. Disregarding the relationship you have with the owner, you feel like you’ve already put in so much money, and you don’t want to lose the money you have already invested. So feeling like you still have an opportunity to make your money back you give the owner another 2.5 million. 

Yet, another year later, the business goes belly up and is forced to close its doors. You could have only lost 5 million but, because you put in another 2.5 you lost 7.5 million. Which, had you taken the 2.5 million and put it into a safer bet, you could have at the very least made your money back in the same amount of time it took to lose all of it.

Now, obviously there are a million factors that go into making decisions like that, however I’m trying to convey what an example of a sunk cost fallacy is. It’s the notion or feeling that you’ve spent a bunch of time or money on something, so you should keep spending time or money on that thing when what you should actually do, is cut your losses and walk away.

This concept comes up time and time again and will slap you in the face over and over while organizing. Say you’re organizing your closet, while organizing you go through each piece of clothing. You pick up a T-shirt you’ve had since freshman year of college. It’s most definitely seen better days and the feelings in your gut are conflicted, it’s telling you to get rid of it to make room for your other clothes, but also you’ve had it so long and you’ve experienced so many memories while wearing it. 

But you stopped wearing it more than 3 years ago. 

If we put these feelings on a scale you’d be leaning more towards the Memories side. Sadly, however, we shouldn’t always listen to our feelings. There are times to listen to them, but other times we should analyze them and subject them to logic.

I bet I know which way you’re likely leaning right now. I too want to keep the shirt. However, in this specific scenario I also know that we are toe to toe with the sunk costs fallacy. There’s a small benefit to keeping it since it will take up space, and for what, that one time you take it out every 3 years to look at it and feel a sense of nostalgia VS. more space to more easily access your clothing and possibly even make room for new clothing to create new experiences in! So the logical move to make, the move that knocks out the sunk cost fallacy, the move that leads to more relief and joy in the long run, is to thank the shirt and send it on it’s way into the next life. 

However, if you really really really have to keep the shirt, if it just means that much to you, then display it! Make it an art piece, at the very least get it framed. 

Very very few of us are going to win the lottery yet, we all can make good investment decisions every day to get more organized and live a more joyful life. All it takes is being aware of, and willing to fight the sunk cost fallacy.

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