Opinion: Sinking costs
Commentary by Terry Anker
In for a penny, in for a pound is a cliché originally intended to point to the equivalency of punishment under early English rule. It held that failure to repay a penny would be as severe as that for the much larger English pound sterling.
Today, most use the expression to indicate that once someone has gone so far down an intended path, they must apply whatever resources, even if excessive, to see the task through to completion. The notion holds there is a point of no return, where it becomes closer to proceed to the distant destination rather than fall back to our point of origin.
In business, one might call this phenomenon a sunk cost. Once one has invested so much in a project or person, the incentive to see it through to completion can outweigh a prudent decision to review the circumstances dispassionately and walk away. When does it make sense to stop investing in a situation that we intuitively know, if we’d admit it to ourselves, is unlikely to ever show a return?
Yet occasionally, pushing just a bit more provides significant enhancement above baseline effort. Universal Studios Orlando (and many others like it) offers Fast Pass technology. In a nutshell, a ticket through the park becomes supercharged with private (much shorter) lines for accessing the attractions. At roughly double the ticket price, a purchaser can navigate the experience with many fewer line-hours-per-ride. After one has spent thousands of dollars and much precious vacation time, sunk cost theory might persuade us that a few hundred more is a pittance to ensure that ours is a robust, full and memorable trip. Still, sunk cost theory can lead to a sinking feeling. In us, the methodology creates a cavalier attitude toward spending. For purveyors, it can create complacency in innovation.