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Definition of:

Sunk Cost Fallacy

What is Sunk Cost Fallacy?

The sunk cost fallacy occurs when an individual continues investing in a project or decision solely because they have already invested resources such as time, money, or effort, regardless of the current cost-benefit analysis.

This cognitive bias can lead to increasingly poor decisions if more resources are spent to justify the original investment

Context in Marketing

In marketing, particularly in digital and content marketing, the sunk cost fallacy is often leveraged to encourage consumers to commit further resources.

For example, a typical scenario might involve an individual watching an 80minute marketing video or webinar that promises to reveal secrets to success.

After investing time, the viewer is presented with an opportunity to purchase a course or additional content.

Why Sunk Cost Fallacy is Effective

Having already ‘invested’ significant time watching the video, a viewer may feel that not purchasing the offered course would make their initial time investment a waste.

This feeling is a direct result of the sunk cost fallacy, as the decision to invest further is influenced by the time already spent rather than the intrinsic value or potential benefit of the course.

Marketers often design these experiences, such as long-form content or elaborate webinars, to create a sense of commitment and engagement from potential customers.

The longer and more involved the initial free experience, the more likely individuals are to feel invested and thus more likely to make further purchases to validate their initial ‘investment.’

Advice for Consumers

It’s crucial for consumers to recognize when they’re experiencing the sunk cost fallacy.

Decisions about further investments in time, money, or other resources should be based on what is expected to deliver real value moving forward, not based on what has been previously spent.

Evaluating offers critically and independently of past costs can help in making more rational, beneficial decisions.

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