According to Investopedia, the 'Sunk Cost Trap' is the tendency of people to irrationally follow through on an activity that is not meeting their expectations because of the investment of time and/or money they have already spent on it.
Although an economic concept, the Sunk Cost Trap is also a psychological phenomena and applies to many aspects of life including dispute resolution. It causes individuals to stay the course or even invest more time and money in a bad decision or course of action in a futile effort to make their initial decision seem worthwhile.
In mediation, we often hear the plea that " I might as well go to court. I have nothing to lose as I have already spent $60,000 on it, why would I give up now". Of course, if it was the wrong decision in the first place then throwing more money or time at it will simply make it worse.
The rationale behind it is that we have a genuine interest in making our efforts worth our while and even if we consider our efforts, time or money spent to be in vain,we are reluctant to abandon them.
Somehow we believe that by continuing , we can recover sunk costs but the reality is that they are gone and we can't.
Similarly in life, it would be like persisting with an unfulfilling job just because we had invested so much time in it or a country persisting with a war so the lives already lost are not wasted.
Allowing ourselves to admit mistakes and move on is far better than entrenching ourselves in a situation just to save face.
The fact that we have already invested a lot in legal costs can never be a good reason for persisting in going to court if the better decision in the circumstances is to cut our losses. Cutting our losses, means admitting that we have made a mistake and we all find this hard to do but ultimately it may be the more productive decision.
For all inquiries about the benefits of Mediation phone us at Brisbane Mediations on 07) 38397400 or visit our website www.brisbanemediations.com.au. You will be pleased you did!!
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