Mental models are a way of explaining how things work. Throughout our lives, we build up a personal collection of mental models to understand the world around us.
Mental models aren't perfect but developing a rich toolbox of them can be useful in navigating the complexities of life. Learning to intuitively apply the right models in the right situations is something we develop with practice.
This website is a curated collection of models with broad applicability in everyday life. There’s a focus on brief descriptions and simple, real life examples of the models in use.
Weekly Mental Model
Sunk Cost Fallacy
We have a tendency to continue an endeavor after investing resources into it even if it's no longer worthwhile.Description
The sunk cost fallacy describes our resistance to stop an endeavor after investing time, money or effort into it. This limits our ability to see its worth in present terms and potentially misallocate additional resources on it. In other words, we're not cutting our losses. Ideally, we would make decisions regarding an endeavor based on relevant information--suck costs are almost always irrelevant.
Examples
When selling a used car, the amount originally paid should have not factor into the decision to sell it. Rather, the decision to sell the car should be based on if the owner will get more value from selling it at the current resale price versus keeping it.
When working on a business that's not picking up any traction, we may feel obligated to continue due to amount of time and money we've poured into it. That effort is a sunk cost, future decisions regarding the business should ignore it. See also: escalation of commitment.
Leaving in the middle of a sports game might feel like we're wasting the money spent on the ticket. However that money has already been spent, it should not impact future decisions.