How many of you remember FarmVille? In fact, how many of you even play FarmVille? At its peak, Farmville had about 80 million players in 2010. If you remember FarmVille, you might even remember how much of a time sink it was. Yet, people keep playing and playing and playing. Why?
Many games on social media like Facebook and on smartphones all exploit an economic and social psychology concept called the sunk cost fallacy. A sunk cost refers to a cost that is paid in the past that is not relevant for making decisions in the future and is a cost that cannot be recovered. For example, if you spend 5 hours playing FarmVille, this is a sunk cost because it is time you are not going to recover. These 5 hours should not be used to make a decision on whether you should play FarmVille in the present because it is time that cannot be recovered.
The sunk cost fallacy refers to the phenomenon that people remain committed to a cause because they have invested irrecoverable resources, even though this committed cause is not economically rational. For many people, although the 5 hours they have already spent on FarmVille is irrecoverable, they use these 5 hours to rationalize their decision to play FarmVille in the present. In other words, these people may tell themselves “I’ve already spent 5 hours on this game, so I should continue to play it!”
Many many video games use the sunk cost fallacy to their advantage, whether intentionally or otherwise. One way the sunk cost fallacy functions is in game preorders. Although there have been calls to avoid preordering games due to the extensive track history that many major title video games do not work fully on day 1 release, it has not stopped people from doing so. For people who have put down a preorder, they have already committed a sunk cost: This is money they are unlikely to recover. However, many people then use this sunk cost to make a future decision about how much they like or want to play the game they preordered. The game’s entire preorder price may have been $50 and on day 1, it is broken and riddled with bugs. A person who preordered it will play and continue to play a buggy, broken game even though the bugs make the game terrible for someone else. The sunk cost fallacy is put into motion: By getting customers to put down an irrecoverable cost, it enables customers to rationalize the value of the final product to be beneficial even if it is not in the customer’s benefit to pursue.
Another way the sunk cost fallacy rears its head is in subscription-based Massive Multiplayer Online Role-Playing Games (MMORPGs). World of Warcraft is household example. You spend money on monthly subscription (money that you cannot recover, or in other words a sunk cost) and play for a little bit. As you play, you have spent time (another sunk cost) and build a character that you do not feel inclined to ignore (sunk cost). I am not here to address the addictive qualities of such games and their destructive capabilities. However, the sunk cost fallacy is likely implicated in this addiction: You have sunk so much time, energy and resources into a MMORPG character that you continue to play, even if it is economically irrational for you to do so.
The sunk cost fallacy is quite common and extends beyond video games. YouAreNotSoSmart.com contends that it is important to see something that is gone forever and irrecoverable. Although it is not easy to identify and ignore sunk costs in the decisions we make daily, it is very useful to not hold onto irrecoverable costs in the past.