The Concorde fallacy is a mental bias where people continue spending resources (money, time, or effort) on failing projects because of a prior commitment. Let’s see the story of Concorde and how a fallacy was named after it.
Concorde was an impressive aircraft.
It had an elegant design, with a maximum speed over twice the speed of sound, and it allowed New York – London trip to be only 3 hours. So it was a huge sensation when it started flying and it still has a legendary status among aviation geeks today.
How the Concorde project became a fallacy
But Concorde had many problems as a project.
First, it had a huge cost.
State-owned British and French companies (Aérospatiale & BAC) jointly started developing the plan in the early 1960s.
The initial estimation of the project’s cost was £1.5 billion with today’s money, but eventually, it required £9.43 billion. Because of its cost, only 20 Concordes were produced.
Airlines showed interest at first, but most of them decided not to purchase Concorde due to many reasons. It was like making a bus out of a Lamborghini:
- It had high fuel consumption: Airlines were only able to sell tickets as a “premium” flight. A round trip with Concorde costs around 30x the cheapest options at the time.
- It was noisy: Flying over land was causing complaints from citizens due to the sonic booms. So airlines were only able to use it for overseas routes.
- It had engineering challenges: Its supersonic speed created unexpected issues which increased maintenance costs and raised safety concerns.
So in the end, only Air France and British Airways (also owned by the same states) purchased and operated Concorde.
It took a Concorde crash that killed 100 passengers and the aviation crisis after September 11 attacks for them to retire it in 2003.
Emotional Attachment to the Sunk Cost
The question is: why did the British-French governments insist on the Concorde project for so long (30+ years) despite its obvious flaws? Why didn’t they stop the project earlier but continue spending more taxpayer money and critical resources?
The reason is Sunk Cost (Concorde) Fallacy.
It occurs when people allow the past cost of something to influence their decision-making today. The past cost -which is unrecoverable– can be time, money, or emotion.
British & French governments thought that they had already invested a lot in Concorde, so they continued pouring even more money and time to make it work.
They could have stopped the losses while they were small, but the sunk cost kept them going, which ended up with a much bigger failure.
Rational decision-making requires the evaluation of possible future gains and losses. The invested effort, money, or time has no rational impact, but only emotional.
So when making decisions, detach your emotions about the sunk cost. It’s unrecoverable. Assess the situation rationally and don’t be scared to cut the losses if you have a better option for investing your resources.
When you find yourself in a hole, the best thing you can do is stop digging.
Warren Buffett
Ask yourself:
- Do you have a project in your life that you continue only because of your sunk cost rather than possible future gains?
- Have you ever put more money into an investment after initially losing money?
- Do you have a person that you keep in your life only because you have a long history?
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