The sunk cost: Farmville and software projects

By Manuel Ilincheta The 50 million users of Farmville (online game where the player is responsible for

By Manuel Ilincheta

The 50 million users of Farmville (online game where the player is responsible for its virtual farm) may not have much fun while playing, but they are a good example of a curious phenomenon that is rooted in the fear of humans towards losses. They are a perfect case of the “sunk cost fallacy” that affects both the online gaming world and business decisions taken by companies.

The sunk cost is an expense or investment that once made cannot be recovered. So the sunk cost fallacy is a behavior that is manifested in the trend to maintain a course of action when money, time or effort have been invested in it, but a simple analysis makes it clear that only the incremental costs and benefits should be taken into account when making a decision.

And this is, in the words Sizhao Zao Yang, co-creator of Farmville, one of the foundations of the success of the game: “Farmville uses a concept called appointment gaming, which is based on the fundamental concept of using time and investment to make the player return. This concept is called the sunk cost fallacy. The investment made in the game is crucial to make the player feel psychologically attracted to return … “.

Studies made by Kahneman and Tversky in the 70s pointed out that people risked only a certain amount with the promise of a prize twice as big. The conclusion was that the fear of loss is at least two times greater than the interest in winning. The fear of loss is a major human motivational factor. Animals and children, according to Plaisier and Webley studies, are much less susceptible to this effect.

And this force is evident in the mechanics of Farmville, where players engage in the virtual world, and not honoring the commitments has consequences: if the player does not return, his work in the game (crops and animals) is wasted, leaving the player with a sense of loss. Of course you can pay real money to avoid these losses. And this triggers a cycle, in which the player does not play to enjoy, but to avoid negative feelings or chooses to pay to avoid them.

What happens in the software industry?

This phenomenon occurs in all spheres of our lives, and also happens to teams developing software. Imagine a team working on a new module for its client. What should be considered when the development is in an advanced stage and the client reports business changes that affect the architecture? Re-do everything that has been developed, or somehow try to adapt the existing? Time and effort invested will be “wasted” if you decide to redefine the module … although this module is not perfect it should be finished. On the other hand, the redefinition will make the system better reflect and meet the client’s business objectives. In light of the above, the team will tend to overestimate the time and effort invested. To avoid “losing” this investment, unrecoverable anyway, the decision will be in most cases to continue over the previous road instead of restarting the work. An objective technical analysis would certainly recommend reengineering to achieve the best solution.

This also applies to decisions to implement systems for large companies. In a surprisingly large number of cases development and deployment of technologies are continued even though they are already known not aligned with the new strategic objectives of the company.

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