Doggie Bags & Sunk Costs

by Roger Dooley on 23 June, 2009 - 23:19

Did you ever get a meal at a restaurant that you didn’t like, but have them wrap up the leftovers anyway? Even though the food’s flavor is unlikely to improve with age, there may be an explanation for the seemingly irrational behavior. (For non-US Neuromarketing readers, restaurant leftovers are often packaged in a “doggie bag” even though the consumers will be human rather than canine.) According to B. Venkatesh, a self-proclaimed investment psychologist and writer for the Hindu Business Line,

The nucleus accumbens, the brain’s reward system, is turned on whenever you see a product that you desire. The insula, on the other hand, is activated when you suffer from aversion, like spending money.

You buy a product when the nucleus accumbens overwhelms the insula. But when your purchase decision (ordering food) turns wrong, the insula gets activated and increases your pain. To pacify the pain, you decide to take the food home and “repair” it. [From the Hindu Business Line - Overcoming Painful Decisions by B. Venkatesh.]

Venkatesh attributes our reluctance to abandon the distasteful food to a “pain of wasting” - the more we paid for the meal, the more it will “hurt” to discard the leftovers. This pain tends to wane over time as our brain becomes occupied with new issues, and we will eventually discard the food.

I think this is all part of the broader issue of sunk cost. Economists have long argued that sunk costs, i.e., money that has already been spent and can’t be recovered, are irrelevant to decision-making. Only new costs, they say, should be considered. Behavioral economists, who take into account not just economic theory but also real-world human behavior, argue that sunk costs do indeed affect our decisions whether or not that is rational.

In Small Favors, Big Success, I wrote about how performing a small favor for someone makes us more likely to follow up with a big favor. Neuromarketing reader Scott commented that this might well be part of the sunk cost phenomenon - having invested time in helping someone, you tend to continue to do so, he proposes.

Seth Godin makes the point of sunk cost irrelevance briefly but eloquently in Ignore Sunk Costs. Good advice, but hard for our human brains to actually follow.

Original Post: http://www.neurosciencemarketing.com/blog/articles/doggie-bags-sunk-costs.htm