Sunk Cost Fallacy

The Sunk Cost Fallacy is our tendency to keep investing time, money, or effort into something just because we’ve already put resources into it, even when it no longer makes sense to continue or it causes losses.

Imagine you bought a movie ticket, but halfway through the film, you realize it’s terrible. Instead of leaving and doing something more fun, you stay just because you already spent money on the ticket. The money is already gone (a sunk cost), but we feel we have to “get our money’s worth.”

The Sunk Cost Fallacy is a pervasive force that shapes decisions in every facet of our life. Recognizing its patterns in diverse contexts is the first step toward immunizing ourselves against its influence.

• Relationships: Staying in an unhappy or unhealthy partnership because of the years invested, the shared memories, or the joint property accumulated.
• Education: Realizing halfway through a degree that we have no passion for the current field of study. Yet, the immense sunk cost of tuition and time compel us to finish the degree and even enter a career we dislike, trapping us in an unfulfilling professional life for decades.
• Hobbies: Grinding through the final hours of a video game we no longer enjoy simply to justify the initial investment of money or time.
• Health: Persisting with a diet or fitness regimen that is clearly not working or is causing us distress, simply because we have already committed time and effort to it.

• Project Management: A team or company continues to allocate budget and personnel to a project that is clearly over budget, behind schedule, and unlikely to meet its objectives. The fear of having to write off the initial investment as a loss prevents them from making the rational decision to cancel the project and reallocate resources elsewhere.
• Entrepreneurship: An entrepreneur might become so attached to their original vision that they ignore clear market feedback indicating a need to pivot. Their refusal to abandon the initial plan, driven by the sunk costs of their effort and ego, often leads to the failure of the entire business.

• Investing: Holding onto a losing stock, hoping it will “come back” to the purchase price. The initial price paid becomes a powerful psychological anchor. Instead of evaluating the stock based on its current fundamentals and future prospects, the investor bases their decision on the irrecoverable past cost, often forgoing the opportunity to sell and reinvest the remaining capital in a more promising asset.
• Consumer Behavior: A company may sell a high-ticket “platform” item (like a video game console, a specific coffee machine, or a razor handle) to lock the consumer in. Having made the initial large investment, the consumer feels compelled to continue buying the compatible consumables (games, coffee pods, blade cartridges), even if better or cheaper alternatives exist.

• The “Concorde Fallacy”: The British and French governments continued to pour billions of dollars into the development and operation of the Concorde supersonic jet long after it became clear that it would never be commercially viable. The sheer magnitude of the initial investment created immense political pressure to see the project through, to avoid admitting that the vast sums of taxpayer money had been spent on a failure.
• Military and Political Decisions: The decision to escalate involvement in protracted conflicts, such as the Vietnam War. As costs in lives and treasure mounted, leaders felt that withdrawing would mean that all previous sacrifices had been “in vain.”
• Environmental Policy: Governments and corporations may continue to operate and subsidize environmentally harmful infrastructure, such as aging coal-fired power plants or ecologically damaging dams, because of the massive capital already invested. This reluctance to abandon past investments, even when cleaner and more efficient technologies are available, significantly hinders progress toward sustainability goals.

The Sunk Cost Fallacy is not a simple error in calculation; it is a deeply ingrained cognitive bias powered by a potent combination of emotional, social, and ego-driven psychological forces.

The human brain is wired to react more strongly to losses than to equivalent gains. On average, we perceive the psychological pain of losing $100 as about twice as intense as the pleasure of gaining $100¹.

This asymmetry profoundly impacts decision-making in sunk cost scenarios. When we contemplate abandoning a failing project, we are forced to frame the situation as cementing the loss. The time, money, and effort are now officially and irrevocably “lost.” This triggers the brain’s powerful loss-aversion mechanism, creating a strong feeling of psychological pain. Continuing the project, however, allows us to avoid this immediate pain. It keeps the hope of success alive, maintaining the illusion that the initial investment might still be recouped.

A second powerful force is Commitment Bias, also known as Escalation of Commitment. This describes our tendency to remain consistent with past behaviors and decisions, particularly those that have been made publicly. We have an innate desire to be seen (by others and by ourselves) as consistent, reliable, and resolute. To reverse a decision is to appear fickle or, worse, to admit a mistake.

This bias becomes exponentially stronger when a commitment is made in public. Announcing a new business venture to friends and family, posting marathon training progress on social media, or a CEO championing a new strategic direction to shareholders all create a powerful social trap. Backing out of such a commitment now involves not only the private pain of a sunk cost but also the public cost of losing face, damaging one’s reputation, and appearing to have failed. This intertwining of internal psychological needs with external social pressures creates an immense force compelling us to stay the course, even when evidence mounts that the course leads to ruin.

When our actions conflict with our beliefs about ourselves, we experience a state of intense psychological discomfort known as Cognitive Dissonance. A core belief for most people is “I am a competent, intelligent decision-maker.” When faced with evidence that a past decision was poor (e.g., an investment that has plummeted in value), this core belief is threatened, creating dissonance.

To resolve this uncomfortable tension, the mind engages in Self-Justification. Rather than accepting the painful reality that a mistake was made (“I made a bad investment”), it is often easier to rationalize the action or distort one’s perception of it (“This is a long-term project that just needs more resources to succeed”). This is an unconscious defense mechanism designed to protect our ego and preserve a positive self-image. We effectively lie to ourselves to avoid the feeling of being foolish or having been wrong. The more we have invested, the greater the threat to the ego, and thus the stronger the need for self-justification, leading to even deeper commitment to the failing endeavor.

Consciously reframe the decision-making process. The past is immutable. The resources already spent are gone forever. The only question that holds any real power is:

Given the current situation, what is the best choice from this moment forward?

or even more precise

Regardless of what I’ve already invested, what choice will give me the best outcome going forward?

This mental pivot from “How do I justify the past?” to “How do I optimize the future?” is the foundation upon which all other strategies are built.

Society often stigmatizes quitting, equating it with failure. A crucial part is to dismantle this narrative. In the context of a failing endeavor, quitting is not an admission of defeat. It is a courageous and strategic act of cutting losses to liberate resources for a more promising opportunity. An “intelligent quit” is a sign of wisdom, adaptability, and a commitment to future success, not a reflection of past failure. Winners do quit, but they quit the right things at the right time for the right reasons.

Before starting any significant project or commitment, define specific, measurable conditions that signal when it’s time to reassess your commitment or walk away. These conditions will act as checkpoints, allowing you to evaluate progress based on objective benchmarks rather than emotional attachment. For example, if a project doesn’t hit certain milestones by a predetermined date, it might be time to pivot or cut your losses.

When deeply invested in a decision, it’s easy to become blind to its shortcomings. Seeking outside perspectives can provide a crucial reality check. Friends, mentors, or colleagues who are not emotionally tied to your past investments often see the situation with greater clarity and objectivity. They can help you weigh the actual benefits of continuing versus stopping, free from the distortions of sunk cost bias.

When faced with a sunk cost fallacy dilemma in an important life decision it might be useful to use a more structured approach for analyzing the situation. Below you can find a simple framework that can help you to make a final decision.

Conduct a clear-eyed audit. Make a list of all the resources that have already been invested and are irrecoverable: the hours, the dollars, the emotional energy. Then, perform the difficult but necessary mental act of writing them off. Acknowledge that these costs are in the past and are irrelevant to the future decision. This conscious act of recognition and detachment is the first step toward breaking the emotional anchor to the past.

Shift focus to the potential loss of continuing the current course. This is the opportunity cost - the value of the next-best alternative that must be forgone. Ask: “What are the other specific, valuable things I could be doing with my future time, money, and energy if I were to stop this now?” Listing concrete and attractive alternatives makes the cost of persistence far more tangible and immediate.

Seek the perspective of a neutral, trusted third party who is not emotionally attached to the outcome. If an external advisor is unavailable, a powerful mental exercise is the “Friend Test”: Ask, “What advice would I give my best friend if they were in this exact situation?” This simple act of psychological distancing often strips away the ego and emotion, revealing the most logical path forward.

Ask yourself: “Knowing everything I know now, if I were starting from scratch today with zero investment, would I choose to begin this endeavor?”. If the honest answer is “no,” it is a powerful signal that the only thing keeping the project alive is the weight of its past, not the promise of its future.

After working through this rational process, make the decision. If the choice is to cut losses, it is important to reframe the experience. The past investment was not a “waste”; it was the “tuition fee” paid for a valuable lesson in decision-making. Conduct a post-mortem analysis to understand what went wrong, what was learned, and how to avoid similar traps in the future. This transforms a perceived failure into a real asset: wisdom.