The sunk cost fallacy is one of the most expensive mistakes you can make in software development.
Take my friend’s story of a CTO going all in Remote Desktop Services, for instance.
Their company’s CTO heard a Microsoft Evangelist present the benefits of Remote Desktop Services (RDS), including a forecasted savings of over three years of around $700,000.
A decision was made. Many licenses were bought, and employees were transitioned to RDS. Then, engineers began to express dissatisfaction. Three engineers left the firm. If you’re an engineer, you’ll likely understand why — working on a remote desktop can’t compare to the experience of using a local OS with full admin rights. The decision-makers clearly hadn’t taken user experience into account.
Finding replacements proved challenging. Potential hires were often put off when they learned they’d be working in an RDP client. But the CTO had already invested so much that he kept pushing RDS.
More engineers quit in the following weeks. The entire shift to RDS began to look like a costly mistake, with losses seeming to outweigh the projected savings.
The CTO’s frustration grew, so he purchased expensive training and made it mandatory for the employees, but this only led to more departures. Again, sinking more money into this plan.
Six months later, the CTO had to acknowledge that the transition to RDS had been a mistake. Why did it take so long to reach this conclusion? It appears to be a classic instance of what’s known as the “sunk cost fallacy” or “escalation of commitment.” This behavioral pattern occurs when, despite increasingly negative outcomes, individuals or groups persist with a decision, action, or investment, aligning with prior choices even when it becomes irrational.
Evidently, there’s a psychological mechanism of attachment: the more resources—be it time, money, or effort—we invest in something, the more we value it.
A manager who has relied on the DISC method for a decade in areas like hiring and motivating employees may be shocked to hear a fact that the whole DISC theory is not better than astrology. Such a manager might react defensively, thinking, ‘How can this be a waste when I’ve dedicated so much to it?’”
The power of the sunk cost effect is so strong that even in medical trials scientists see that the more expensive the placebo pill is, the stronger its effect seems to be.