Have you ever continued to make bad investments because you were afraid of losing the things you invested in at any time in your life?
Decision making is one of the important dynamics in human life. The decisions we make affect our present and future to certain extent. Human beings, who were created with a mental reasoning ability different from all other living creatures in nature, engage in mental preoccupation with the future during the decision-making process. In order to make a rational decision, it is necessary to establish a profit-loss balance for the future. The rational decision is to follow options that will benefit oneself in the future. We begin or continue investing in resources that we hope will benefit ourselves or our loved ones. This investment can be monetary, emotional or temporal. However, people cannot always act rationally and may fall into the so-called Concorde Fallacy without realizing it. The Concorde Fallacy is when a person bases his decision on past earnings rather than future earnings.
After World War II, the idea of building a supersonic passenger plane emerged. Committees were established for this purpose in many countries, especially in England, and a supersonic jet began to be designed. In 1962, France and England initiated the supersonic aircraft project, and as a result of their 7-year efforts, the jet named 'Concorde' was born. However, Concorde, for which a lot of money and time was spent on its production, performed below expectations and was found unsuccessful in its test flight. The fuel cost of the Concorde plane was very high and its passenger capacity was small. Additionally, its reliability was not found sufficient. Despite this, the production and investment of the aircraft continued. And it was made available in 1976 (Teger, 1980).
In 1996, the British Psychological Association held a conference on the subject of "Thinking". At this conference, Oxford University zoologist Alex Kacelnik put forward his theory called "Concorde fallacy". The Concorde fallacy is the logic that more investment must be made to escape the fact that the previously invested resource will be lost, without taking into account the overall losses involved in the earlier investment. The name of the theory is the supersonic named Concorde. It was coming from the plane. Just as the project authorities, who spent 7 years to produce Concorde, put the plane into use, which they found unsuccessful, in order not to lose their previous efforts, in daily life, we do not leave the work we started unfinished, just for the sake of our past investments, and continue even if it will harm us. Ultimately, the negative trend continues and ends negatively again. Just like the Concorde plane crash that killed 113 people on July 25, 2000, about 4 years after Alex Kacelnik named his theory 'Concorde'... This theory, when read in the article, seems quite dysfunctional and contradicts the rationality of the human mind. It is used quite frequently in human life. What motivates people is what they lose rather than what they gain. And we engage in riskier behavior to save what we've lost. The most typical example of this theory is that a bettor, who has lost most of his money in previous games, puts up all his money in the hope of getting back what he lost in the last game. In fact, the bettor prefers to continue the negative trend rather than giving up the resource he invested in. It is easier to hope that things will improve than to accept the plight despite a lot of investment being made for it.
We can also see the Concorde fallacy in more everyday situations. For example, let's say you purchased tickets for the concert of your favorite artist a week in advance. You catch a cold and the flu on the day of the event. You are undecided whether to go to the concert or not. What is rational is to calculate the balance of future benefits and harms as follows:
''I feel bad. Even if I go to a concert, I won't have a good time. There's a chance I'll get worse sick when I get home. I shouldn't go. ‘’
However, when you fall into the Concorde Fallacy, it is possible that you will decide to go to a concert even if you are sick. Otherwise, you will waste your money and lose the resource you invested in. However, you have already spent the money. Whether you go or not, you can't take it back. Therefore, the decision we made considering the investment made in the past is far from logical.
In hotels or open buffet restaurants There are people who fill their plate until it overflows with the motivation of 'I should eat as much as I pay', those who do not leave the book unfinished and complete it because they cannot give up on the part they are reading even though they do not like to read the book they have started, those who cannot abandon the course they have written for because they do not find it productive but continue to the end because they started, and many other similar situations. can be given as an example. As we see in these examples, the Concorde Fallacy does not only manifest itself in the material field. It also manifests itself in human relations, in situations where we cannot give up because we have made an emotional investment in the past.
Although the Concorde Fallacy occurs psychologically in many areas of human life, it has not been studied sufficiently by psychologists. What we know about the Concorde Theory consists of research on the 'Sunk Cost Fallacy' in the field of behavioral economics. The Bankruptcy Fallacy is an economic term and covers situations where the Concorde Theory is realized only through financial investments. In other words, in the Sinking Fallacy, investments are only monetary, not emotional or temporal investments. Therefore, it is more related to economics than to the science of psychology.
We can better understand the difference between these two terms with this example. Let's take someone who has a one-year membership to the gym. Let's say he went to exercise regularly for 4 months but recently lost his motivation. One day, when he was reluctant to go to the gym, he said, 'I paid my money for a year in advance. If one thinks, 'I have to go as much as I can get my money's worth', we can give this as an example of the Fallacy of Losing Money. If you take into account not the money but the other investments you have made, 'I have been continuing regularly for 4 months. If I don't go today, my effort will be in vain. If the person thinks, "I should continue to go to the gym as much as I am physically tired and in return for the time I spend on sports," we can show this as an example of the Concorde Fallacy. In short, while Concorde is used in situations that include all monetary, temporal and physical investments, the Bankruptcy Fallacy, which is an economic term, is only the motivation to take action to save one's material investments.
Hal Arkes and Catehrine Blumer in Money in 1985 � They prepared an experiment to demonstrate the Sinking Fallacy. They asked subjects to pretend they had spent $100 on a ski trip in Michigan. But they had a better ski trip in Wisconsin for $50. And the subjects bought a ticket for this journey as well. The researchers then told the subjects that the two trips fell on the same date. Subjects had to choose one of two holidays. They also stated that it was not possible to refund or sell the tickets. They asked whether subjects would choose the ski trip they paid $50 for, but which seemed more involved, or the ski trip in Michigan they bought first.
More than half of the people in the study chose the more expensive trip. They took risks for the situation where they had more losses. They were afraid of losing the money they had already paid in the past. This mistake prevented them from realizing that the option that promised a better experience in the future was more logical, rather than eliminating the feeling of loss for the past investment. (Arkes & Blumer, 1985)
Behavioral economics recognizes that loss aversion behavior often affects economic decisions. The price paid has become a benchmark in one's decisions when the price paid in the past and already lost should be irrelevant. This behavior is considered irrational by economists and psychologists alike, and yet it is quite common. Therefore, as accepted by the vast majority of economics, "Economic rationality is limited". This; It is a factor with enormous implications for finance, the economy, and especially the securities markets. Daniel Kahneman is one of the names who won the Nobel Prize in Economics for his extensive work in this field (McRaney, 2011).
The idea that the Concorde Fallacy is not only valid for economic investments but also has evolutionary and social roots emerged from animal observations of ethologists. . Animals perform a series of tasks such as finding a mate, building a nest, successfully continuing the reproductive process, having babies, raising their young and protecting them from other living things. has responsibility. Animals that fulfill this responsibility make a sacrifice, that is, make an effort, to establish a family. However, in case of a possible obstacle or danger, they are faced with the choice of continuing their lives or abandoning their responsibilities and must make a decision. In 1972, Robert Trivers, an evolutionary theorist at Rutgers University in Newark, noticed that in animals that form pairs, one of the partners leaves the nest and puts the responsibility of raising the offspring on the other couple's shoulders. In such cases, it was usually the animal that had invested less that left the nest. (Oksay, 2007)
Of course, there were theorists who opposed Trivers' idea. However, these names such as Richard Dawkins and Tamsin Carlisle accepted that the Concorde theory was possible in various fields as a result of repeated experiments. As humans, just like in the animal world, we are afraid to give up the relationships in which we put effort and emotional investment, and even maintain friendships that we no longer enjoy, and may even harm us, for the sake of time. In our social environment, especially in mutual relationships such as marriage, the fact that the party that puts in more effort has a greater desire to continue the relationship despite the deadlocks in the relationship coincides with the pattern seen in animals where the party that puts in less effort leaves the nest earlier.
It is also possible to see the Concorde Fallacy in Turkish proverbs and sayings. The defeated wrestler cannot get enough of wrestling, the fish sinks and goes sideways, the captain is the last to leave the ship, some of these are.
In the Concorde Fallacy, there is an unrealistic expectation of hope. For this reason, it is also called 'Hope Theory'. Hope is a factor that increases a person's life motivation and resistance to negative life events. However, as seen in the concorde fallacy, unrealistic hoping behavior will not improve the person who is already on a negative course; Since the person continues the behavior that caused the negative trend, expecting a positive result, it will cause the negative situation to continue or worsen. In short, the Concorde Fallacy can be explained as 'losing more to avoid being a loser'. Although the Concorde Fallacy is referred to by different names, it is a phenomenon in economics, economics, psychology,
Read: 0
