In many Southeast Asian countries such as Thailand and Burma, owning a white elephant has been traditionally considered a show of great opulence. To this day, white elephant are a symbol of peace and prosperity and are kept by royalties of some countries. On occasion, a monarch would bestow a white elephant upon a citizen to reward them for their service to the country. But this was regarded as a blessing and a curse, as elephants are notoriously difficult and costly to maintain.
Today, the term white elephant refers to items that are gifted that serve little practical use and take up space, such as tasteless decorations. In some cultures, “white elephant swaps” are held around Christmas where people will trade gifts, under the philosophy that “one man’s trash is another man’s treasure”.
A related psychological phenomenon is the sunk cost fallacy. This is when a person sees that an action or investment they made has an increasingly bleak outlook, but instead of bailing, they make the irrational choice to continue. For example, you may pay $3000 for a car, which then breaks down. The mechanic bills you $1500 for repairs, which you choose to pay. The car breaks down again and this time it costs $2000 to repair. You think that since you have already invested $4500 in this car, it is worth paying $2000 to repair it. However, you have now spent $6500 on a car that may cost you even more in the future. The more you invest in it, the more you justify keeping it as you feel you are committed to the investment, resulting in a greater loss.
The sunk cost fallacy affects many aspects of our lives. A common example is relationships. Many people will settle down with someone they do not think is the “right one”. But despite many warning signs you are not very compatible with your partner, people think “well, I invested all this time with this person, I might as well see it through”. Eventually, the two end up in a bitter marriage, regretting that they did not break up earlier to find someone that they could be happy with.
The reason we fall into the sunk cost fallacy is that we do not want to “waste” the investment we have put in already. But economically speaking, you will profit far more by walking away from a bad decision as early as possible. It is a “sunk cost” which you will never get back.
Now think about your life. Are you really happy in your job or relationship? Or are you lying to yourself that it will be alright because you don’t want to face the cruel reality that you chose poorly? Knowing about the sunk cost fallacy will help you save time and money, whether it be putting down a bad book before you finish it, or learning when to walk away from the wrong commitment.
(Image source: https://xkcd.com/1768/)