The Concorde Fallacy is a term used in economics and business to describe the mistaken belief that a project or investment should be continued simply because of the money that has already been sunk into it. It’s essentially the idea of throwing good money after bad.
The fallacy gets its name from the Anglo-French supersonic passenger jet, the Concorde. The Concorde project was incredibly expensive to develop and operate, but both governments involved continued funding it for several years even after it became clear that it wouldn’t be commercially viable. This decision was likely influenced by the fallacy – they felt they had already invested too much to abandon the project.
The sunk cost fallacy essentially says: “We’ve already put X amount of money into this project, so we have to see it through, no matter what.” However, sunk costs are exactly that – sunk. They are irretrievable and shouldn’t be a factor in future decisions. The only relevant consideration is whether the project will be profitable or beneficial moving forward.
The Concorde Fallacy can lead to significant financial losses for businesses and individuals. It can also lead to wasted resources and missed opportunities.
Why Does it Happen?
- Loss Aversion: We tend to feel the pain of loss more intensely than the pleasure of gain. Giving up on a project after investing heavily can feel like a significant loss, even if continuing might lead to even greater losses.
- Emotional Attachment: People can become emotionally attached to projects they’ve invested time and effort in. This can make it difficult to let go, even when the rational choice is to do so.
The Concorde Fallacy is a common pitfall. By understanding it and focusing on the future implications of decisions, you can avoid wasting resources and make sound choices in business and other areas of life.
Sunk Cost Fallacy