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No.25 Sunk Cost Fallacy

The Sunk Cost Fallacy is a human behaviour pattern in which a shopper facing increasingly negative outcomes from a decision, continues the behaviour regardless.

This phenomenon sees shoppers maintain behaviours that are irrational but align with previous decisions and actions, instead of altering course.

For example, shoppers sometimes buy too much food and then over-eat just to “get their money’s worth”. Similarly, a shopper may have a £20 discount voucher and then spend £200 that they were never intending to spend just so that they can use their £20 voucher having initially decided it had value.

If the costs outweigh the benefits, the extra costs incurred (inconvenience, time or even money) are held in a different mental account than the one associated with the in-store special offer transaction (Thaler, 1999).

When it comes to what this means for shopping, in-store and online, there are a number of considerations:

1. Take a deposit – once a shopper has made a financial investment toward a purchase, the Sunk Cost Fallacy means they tend to not see that deposit as part of the cost, focusing instead on what remains to be paid.

2. Shopper investment – once you can get shoppers to invest time, effort and/or money, they will be more likely to purchase. If only so that they don’t lose their initial investment.

3. The free incentive – shoppers are significantly more likely to complete a ten-stamp card for a free coffee once two spots are stamped. More so than an eight-stamp card without any spots stamped because the Sunk Cost Fallacy means they already feel they have made a significant start on their card meaning they focus on the completion of the remaining 8 stamps.

As with all things in marketing, getting the best results from Sunk Cost Fallacy is a balancing act. You’ll have to consider your brand image and business ethics, marketing goals and the opportunities your products or services provide for exploiting the Sunk Cost Fallacy phenomenon.

About Phillip Adcock

My name is Phillip Adcock: I have more than 30 years of human behavioural research and analysis, and have developed a unique ability to identify what it is that makes people psychologically and physiologically 'tick'.

Would you like to know more about how shoppers and consumers think? Download my FREE guide now. Alternatively, check out www.adcocksolutions.com, where there are more FREE downloads available there. Or why not simply email me with what's on your mind?

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Phillip Adcock
Psychology & Behaviour
Change Consultant

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