Your Brain on Philanthropy: the Sunk Cost Fallacy

I’m going to switch gears a little here. Where as previously in this series I’ve been focusing on the ways donors and prospects perceive financial opportunities and situations and how fundraisers can be aware of those cognitive tendencies so as to avoid making unnecessary mistakes (and so as to being our best, most effective fundraising selves!), today I want to talk about a cognitive bias or fallacy that affects us as fundraisers: the Sunk Cost Fallacy.

We commit the sunk cost fallacy when we continue doing something even after it’s become clear that it won’t be successful, being motivated to continue banging our head against the wall simply because of how much (time/money/energy/hope) we have already invested in that effort and that hoped-for return. It’s a rather wide-reaching fallacy across our lives: it is partly to blame for why we stay in bad marriages, why we stay in bad jobs, why we hold onto bad investments, why we finish our entire plate of food at a restaurant even when we’re full-to-bursting, why we wear painful (though fabulous!) shoes. Once we pour some part of ourselves into something, we become committed to getting value out of those invested efforts no matter what, and can become blind to the signs that indicate we may never get the return we’re striving for.

This is me after having run a half marathon that I forgot I had signed up for but decided to run anyway, totally untrained, because I had spent $40 to register and dang it, I was going to get my money’s worth!! This was a very expensive sno cone.

This is a pretty common trap for fundraisers.

We all have donors of a particular type. They are super enthusiastic about our work, they are delightful to talk to and meet with, and they continue to support the work we’re doing at a particular level. They are always willing to meet. They have the means to give at a higher level, and they have an affinity for the work we do. However, we have asked them for a higher level of support, several times, and they have said no each time, with no indication of being willing to consider in the near future. Yet they are always excited and willing to meet with us.

When someone says they are not interested in giving, or in giving at a particular level, as fundraisers we should honor those words and take them seriously. That means that we tailor the way we relate to people as prospects or donors based on what they have indicated they want the relationship to be. If we have gotten a solid no (or several) from one person, we should stop asking for money, and stop treating them as folks we plan to ask for money. We simply need to approach the relationship on the terms they are laying out.

The sunk cost bias will tell us that instead of taking these people seriously and changing the relationship according, we need to make this work, we need to keep hope of a big gift alive, precisely because we’ve spent so much time cultivating the relationship. We have invested in the effort, time and effort and planning! A big ask needs to be successful, otherwise we’ll look like fools!! Making it more complicated, we often genuinely enjoy these people. As in, there’s a reason we continue to try to meet with them. Fundraising is hard, a career filled with rejection and no. When we find donors who are affirming and happy and always willing to meet, it’s easy to find ourselves thinking “Maybe we just haven’t approached them with the right proposal,” or “Maybe next year after they finish their move they’ll have time and resources to think about their giving.” And sure, maybe they will! But at some point, we have to take people at their word when they say they love our work but are also not interested in supporting at the level we had hoped. We need to “let them go” (though still steward them), to direct our focused efforts elsewhere despite the “sunk costs”. If they want to come back to us, they will.

Ultimately, we have a responsibility to our organization to use our time in the ways most likely to increase giving and support. If we take that mandate as seriously as we take our prospects’ words, we will stop meeting with our “Sunk Cost” donors so often, will stop asking our colleagues to invest their time in showing these prospects the work of our organizations, and will shift the relationship into a “stewardship” or “no interest” mode.

As fundraisers, we have a real responsibility to bring in as much funding as we can for our organizations. Funding the work is the most important of our goals, and that needs to guide what we do and who we meet with. Every six months, then, it behooves us to analyze our efforts and our portfolio of prospective donors, to make a renewed effort to continue what has been successful and modify or stop what has been unsuccessful. With individuals, that means taking a hard, clear look at the relationships we’ve built and taking some time to consider the words we’ve heard — has anyone given us a message that they are not interested in supporting our organization at the level we’re asking or hoping for, a level that would qualify them as Major Gift prospects? Then, no matter how much time we’ve invested in the relationship trying to get them excited and invested in the work, we need to shift our focus and strategy. Taking donors and prospects at their word will help us give them the experience with our organization they are asking for, will guide our relationship with them, and will help us invest our precious, limited time and resources in the ways that will help us raise the most money for our organizations. All this will help us avoid succumbing to the Sunk Cost Fallacy.

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