In-Class Group Discussion
Sunk Cost
Fallacy
How past spending shapes consumer choices
01 / 05
The idea
What Is the Sunk
Cost Fallacy?
“The sunk cost fallacy is the tendency to keep investing time, money, or effort because of what has already been spent, even when stopping would be the better choice.”
Past costs cannot be recovered. Good decisions should focus on future benefits and future costs.
02 / 05
A familiar choice
Consumer Example:
Coffee Loyalty Card
“Alex has collected 9 out of 10 stamps for a free coffee.”
“Alex no longer enjoys this coffee chain, and another café is cheaper and better.”
“Still, Alex buys a 10th drink only to avoid feeling that the previous stamps were wasted.”
Past purchases influence a decision that should be based on what is best now.
03 / 05
Two perspectives
Impact on Marketers
and Consumers
For Marketers
- Encourages repeat visits
- Increases customer retention and revenue
- Creates opportunities to promote other products
- Builds loyalty when customers receive genuine value
For Consumers
- Can lead to unnecessary purchases
- May cause people to choose a more expensive or less preferred option
- Can shift attention from future value to past spending
Loyalty programs should provide genuine value and should not pressure customers into buying things they do not need.
04 / 05
Your turn
Discuss Together
“You have 9 out of 10 coffee stamps, but you no longer want coffee from this chain. Should you buy the 10th drink just to earn the free one? Why or why not?”
What would make continuing a rational choice rather than the sunk cost fallacy?
Discuss for 3 minutes.
05 / 05