*waggles hand* It's entirely possible there wasn't much sunk cost fallacy involved there. Businesses with substantial fixed costs (e.g. equipment, employees and brand building to lesser/not quite fitting degrees) can pretty easily end up operating at a loss for a good long while before shutting down or doing what that one did becomes more or less their optimal course of action.
Fiddly bits of how that sort of investment works can mean the eventual net cost to the business is less if they're using it up but still bleeding money for a while, instead of just hemorrhaging over a short(er) period and getting it over with. Sunk costs are definitely involved, and there's no telling if that particular one had actually crunched the numbers and was trying to minimize loss, but rather than being bad decision making it's making the best of a situation that turned sour, for whatever reason.
Basically, while sunk cost fallacy can indeed hurt businesses, there's also times where something that looks like it (to someone without access to their financial reports et al), is something pretty different. A lot of what you mention there looks a fair bit like they were trying for the latter rather than falling prey to the former, too.
No, in this case it was definitely a sunk cost fallacy. They owned their location and owned the equipment, and were remaining open despite never having made a good profit just because they had put so much money into advertising which hadn't worked, training employees, and buying equipment that they couldn't sell for near as much as they had paid for it. They weren't in the red due to fixed costs they were trying to recoup by day to day operating profit - they were barely making enough operating profit to pay employees and didn't have any left to pay themselves for all the time they were putting in. By leasing the space instead they are making considerably more money for far less effort.
I've seen it a lot in business. Another example is a store that I was involved with as one of the partners that spent hundreds of dollars ordering way too many big postcard flyer deals with detachable business cards that had the store info and a coupon. After ordering that money was sunk. We spent a ton of time going all over the dang place putting them out one weekend. Zero coupons got used (print advertising is so dead, lol) and it was just a big waste for the first round. But we had a ton of them left. Their response? We may as well use the rest of them since we have so much money in them, let's drive around and hand the rest out. So they wanted to spend more time and money using the ad materials that had zero effect just because they had already paid for them. I tried to convince them to just use them as a customer loyalty deal and put them in bags to attract repeat purchases and use the money they were going to spend driving around giving these things out for other means of advertising like Facebook and SEM, but I was outvoted. In the end they spent more time and money giving out the rest of these things all over the region. Even months later they never had a single person come in and say they had heard of them from the flyer, nor did anyone ever use any of the coupons.
I also know of a company that bought a crapton of post cards and used the USPS thing to mail to every person in a zipcode. That mailing isn't cheap, and they got zilch out of it. Yet instead of just giving up they had cards left over and expanded their target area and sent a ton more out.
Same logic as people use in these games. Oh, I already put so much time and money into this game - I can't quit now, even if I don't really enjoy it anymore.
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Topic: A Cautionary Tale of Gambling in Mobile Games (Read 3745 times)