Toothonomics 101: The Sunk Cost Fallacy

A lot is changing these days, with updated guidance from the CDC, OHSA and ADA coming more frequently than typical. And things we spent money on yesterday may no longer be useful tomorrow.

So it seems like an apt time to look at the sunk cost fallacy.

First, let’s define what a sunk cost is. It’s something you’ve already spent money on. And—this is important—there’s no way to get your money back.

But the tricky thing about sunk costs is that we deal with them emotionally differently than we should deal with them financially. And that’s where the sunk cost fallacy comes in.

Let’s take a look at a new machine our friend Dr. Deedee Ess bought last month to sanitize her treatment rooms. It cost her $20,000, and at the time it was the best option to properly sanitize a room.

It takes 30 minutes to fully sanitize with the machine, though, so her treatment and hygiene rooms go unused a lot of the time while being sanitized.

Last week—and to be clear this is hypothetical—new guidance came out saying the office could reach the same level of sanitation by wiping down the room with alcohol. That would take about 3 minutes.

But Dr. Ess has already sunk $20,000 into this fancy machine.

So, rather than switching to the 3-minute method, she keeps using the 30-minute method.

If she were to switch, it would feel like she’d lost $20,000 since the expensive equipment would go unused. But since she hangs on to the sunk cost—and continues to leave her treatment rooms empty for large chunks of time—she’ll unnecessarily lose loads of revenue.

The $20,000 loss is compounded every time she uses the machine and loses another 30 minutes of treatment room time.

The sunk cost fallacy pops up all the time. But it’s important to remember that money is already spent. You’re not getting it back. So be careful not to cling to that sunk money and cause yourself further losses.

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