In 2012, the Seattle Seahawks of the National Football League signed quarterback Matt Flynn to a three-year, $19 million deal, $10 million of which would be guaranteed. Most experts agreed—the Seahawks had found their starting quarterback. Then, surprisingly, on draft day, Seattle took a quarterback named Russell Wilson in the third round. This was a head-scratcher for many as the Seahawks had presumably spent money on their next starting quarterback and still had several needs at other positions. Furthermore, head coach Pete Carroll stated that Russell Wilson could compete for the starting quarterback job.
This was laughable to several football analysts, with many saying, “The Seahawks did not spend $19 million for Matt Flynn to be the backup quarterback.” However, Russell Wilson, the rookie earning $750,000 his first year, won the starting job. The following year, Wilson and the Seahawks hoisted the Lombardi Trophy at MetLife Stadium in New Jersey after winning Super Bowl 48.
The Seahawks accomplished this by not falling into the trap of the sunk cost fallacy, sometimes known as the Concorde or retrospective fallacy. The sunk cost fallacy occurs when a person or organization makes present or future decisions based on money that has already been spent. People feel the need to justify their purchases regardless of whether they become burdensome or were the wrong decision.
Someone may skip an important family event because of concert tickets purchased six months ago, even if they aren’t all that interested in the show. Another person may continue to travel to a location that is not particularly enjoyable because of money spent on a time-share the previous decade. Several professional sports teams may continue to play athletes despite poor performances simply because they have already given them large contracts.
At times, the same applies to dentists when it comes to financial planning and making important business decisions. One such example is the time a colleague purchased a scanner to improve impression techniques and enhance crown and bridge methods at our clinic. A scanner had been a desired addition to our practice for a while, and the opportunity to purchase one happened to be during tax planning at the end of the year.
My colleague excitedly purchased the scanner and was ready to dive into the realm of digital impressions. The results my colleague desired, however, did not turn out as hoped. The crowns did not seat properly, and the scanner seemed to always crash. Nonetheless, the office pressed forward for quite some time because of the amount of money spent on the purchase.
Eventually, the scanner sat in the corner collecting dust, and the office went back to PVS impressions.
A couple of years later, the scanner was traded in for a better, albeit more expensive, scanner. Waiting a couple of years to change scanners and constantly using equipment that was subpar did not change the fact that the original money had been spent. Efforts would have been better spent focusing on finding the right device instead of trying to justify the original purchase.
The cost of running a practice is not cheap. Many times, investments in new supplies and equipment come at a hefty price. Perhaps a laser was purchased a few years ago, but it does not provide the originally intended results. The dentist may continue to use it despite constant frustration with the device, or the laser sits unused. The dentist may come across a different laser that would work wonderfully for the office but refuses to consider acquiring the unit due to the capital already invested.
What one needs to realize, however, is that whether the new laser is purchased or not, that money from the past is already gone. A decision must be made as it stands right now, in the present, just as the Seattle Seahawks did when they understood that success on the field would be determined by the results of their players—not by how much money had been spent on them.
The same principle applies in dentistry. Don’t let past regrettable purchases affect potentially fruitful future investments.
CLINTON TIMMERMAN, DDS, MBA, FAGD, FICOI, currently practices in Washington state and is an admitted homer when it comes to all things related to Seattle sports. Go, Hawks! Dr. Timmerman serves on the Dental Economics Editorial Advisory Board.