Cognitive Biases
Sunk Cost Fallacy
The sunk cost fallacy is continuing an course of action because of what has already been invested, rather than because of what it will produce from here. Past spending cannot be recovered by any future choice, so a rational decision compares remaining costs against remaining benefits alone.
By Tajammal MaqboolFounder & Developer
Continuing a course of action because of resources already invested, rather than judging it by its future costs and benefits.
Example: You're an hour into a bad movie and stay to the end 'because you already paid for the ticket.'
What it looks like
In a project review
“We've spent eighteen months and £2M on this platform. We can't abandon it now.”
Why it fails: The £2M is gone whichever way the decision goes. The only live question is whether finishing costs less than the value finishing delivers, and the past spending does not affect either figure.
At the cinema
“This film is terrible, but I paid for the ticket so I'm staying.”
Why it fails: The ticket price is unrecoverable either way. Staying converts one loss into two: the money, plus ninety minutes that could have been spent better.
In a personal decision
“I've been studying this subject for three years — it's too late to switch.”
Why it fails: Three years are spent regardless. The comparison that matters is the value of remaining years in this field against the value of remaining years elsewhere, minus the switching cost.
Practice
5 questions. Answer each one, then read why the tempting wrong answers are wrong.
Frequently asked
- Is it always irrational to consider what you have invested?
- For the decision itself, yes — past spending cannot be recovered. But related forward-looking factors are legitimate: reputational cost of abandonment, contractual penalties, and knowledge gained that lowers remaining cost. These are future consequences, which is what makes them relevant, unlike the spending itself.
- How is sunk cost different from loss aversion?
- Loss aversion is the underlying tendency to weigh losses more heavily than equivalent gains. The sunk cost fallacy is one behaviour it produces: continuing to invest so as to avoid crystallizing a loss. Loss aversion is the mechanism; sunk cost is a symptom.
- Does the sunk cost fallacy apply to relationships and time?
- Yes — any irrecoverable investment can trigger it, and time and emotional investment often bind more strongly than money because they feel less replaceable. The same forward-looking test applies: would you choose this now, given where things actually stand?