Beware of the Concorde Fallacy

When the economic viability of an adventure is uncertain going forward, any decision to continue should not base on what already spent; it has to be about the future progress.

Concorde fallacy
the idea that you should continue to spend money on a project, product, etc. in order not to waste the money or effort you have already put into it, which may lead to bad decisions
 — Definition of “Concorde fallacy” from the Cambridge Business English Dictionary © Cambridge University Press

British Airways Concorde in 1986

The Concorde fallacy, also known as the “sunk cost fallacy,” refers to the fact that both governments (British and France) continued funding the project even they know there was no economic case for the aircraft. They knew it was a commercial disaster but political decisions made it impossible for either government to pull out.

The term “Concorde Fallacy” as been given by evolutionary biologist to the metaphor when animal or humans defend an investment (policy, business or nest) when that defense cost more that abandonment and an alternative. The sunk cost is also known as the retrospective value, are the cost that has been already incurred and cannot recover.

“We’ve come too far to stop now!”

Startups do it also, no matter how flawed the product/services value proposition turns out to be, we are likely to try to adapt everything to the flawed product/feature rather than starting over from scratch and making something that will fit the ecosystem we have. As Alan Skorkin said this is not only in the vision level, it happens also in the code level, “we (developers) will often stick with a technology/library choice through thick and thin long past the time we should have abandoned it and found something that fits our needs better.

The more we invest in a project or a person, the harder it is to let it go. Our brain tricks us into thinking that the more energy we put into something, the more valuable it is.

Daniel Bier in his article The Concorde Fallacy: Why We Can’t Quit Losing Battles about the Iraq war has an excellent illustration:

Inexperienced gamblers fall inside this trap: “Sure, the house took me the last 10 hands in a row, but if I get up now, I’ll have lost everything! I’ve got to get it back!”

We tend think of money we’ve already lost as being “still on the table,” and if only we raise the stakes, we could get it back. To leave would force us to admit our mistake and reckon its cost.

Ego is the enemy, keep having the project on just by thinking how much has been put into it and will lose can’t be the decision, it has to be always in term of how much future it has, what presume to achieve or progress. Only prospective (future) has to be relevant to a decision.

Decision making has to be a rational assessment, are about efficiency and profitability, not by the sunk cost that is more related to the loss aversion.