The Sunk Cost Fallacy

You bought a ticket to a movie, settled in, and after twenty minutes, it’s a dud. The plot is predictable, the acting is wooden, and you’re fighting the urge to check your phone. Yet, you stay. You sit through all two hours. Why? Because you already paid for the ticket. Walking away feels like wasting your money, so you end up wasting your time, a far more precious resource, instead .

This, in a nutshell, this is the sunk cost fallacy. It’s that little voice in your head that convinces you to continue a course of action simply because you've already invested time, money, or effort into it, even when abandoning it would be the smarter, more beneficial choice . It’s the engine behind “throwing good money after bad,” and if you’ve ever held onto a failing investment, stayed in a dead-end relationship, or forced yourself to finish a terrible meal you paid for, you’ve fallen for its trap. Let us pull back the curtain on this common cognitive bias, exploring its psychological roots and, more importantly, providing a clear roadmap to overcome it and make decisions that truly serve your future.

What Exactly is This Trap?

Let's get down to basics. A “sunk cost” is any past investment that is already gone and cannot be recovered . Think of the money spent on that movie ticket, the years invested in a particular career path, or the effort poured into a business project. Rational decision-making tells us that these past costs should be irrelevant to our current choices. The only thing that should matter are the future costs and benefits .

The sunk cost fallacy is our tendency to let these irrelevant past costs dictate our future actions . We feel that quitting would mean our initial investment was wasted, so we double down, hoping to somehow justify it. It’s an emotional reaction, not a rational one. The term itself was famously illustrated by the Concorde project, where the British and French governments continued to fund the unprofitable supersonic jet for decades, reluctant to admit that the initial massive investment was lost .

On the surface, it might seem like perseverance. But there's a crucial difference: true perseverance is driven by a belief in a future positive outcome. The sunk cost fallacy is driven by a desire to avoid admitting a past loss.

The Mind's Wiring: Why We Fall For It

We’re not naturally rational calculators. Our brains are wired with psychological shortcuts and emotional biases that make us prone to this fallacy. Understanding these forces is the first step in disarming them.

• Loss Aversion: Simply put, we feel the pain of loss much more intensely than we feel the pleasure of an equivalent gain . Losing 1,000 feels far worse than the joy of winning 1,000. When we consider abandoning a project we've invested in, our brain frames it as a definite loss. Continuing the endeavour, even at an additional cost, feels like a chance to avoid that painful admission of defeat .

• Commitment Bias (Escalation of Commitment): We have a deep desire to be consistent with our past actions and public commitments . This is especially powerful in a business or social context. Imagine a manager who publicly championed a new software system. When it underperforms, they might insist on pouring more money into it, not because they believe in it, but because pulling the plug would mean public failure and a blow to their ego.

• The Desire to Avoid Waste: We are culturally conditioned to see wastefulness as a negative trait. This leads us to finish the unappetising meal, read the boring book, or sit through the bad movie, all because stopping would make the initial investment feel “wasted” . We’d rather waste more resources than confront the feeling of having wasted what we already spent.

When the Trap Springs

This isn't just an academic concept; it has real, often painful, consequences in our personal and professional lives.

• In Business and Investing: The story of the South African mining industry provides a stark case study. Companies like Harmony Gold and Lonmin continued to pump billions into struggling mines for years, influenced by the massive sunk costs of the past, even when the future benefits were highly questionable . Shareholders were asked for repeated bailouts, with the initial investments clouding judgment about the financial future. On the other hand, Glencore’s decision to place its Optimum Coal subsidiary into business rescue was a clear, if difficult, example of a company choosing to walk away from sunk costs for the long-term health of the business .

• In Our Personal Lives: This fallacy can keep us stuck in unhappy situations.

  • Careers: Staying in a job or field you dislike because you’ve already spent years training for it or building a career in it .

  • Relationships: Remaining in an unfulfilling relationship because of the many years you’ve already spent together, a classic case of honouring sunk emotional costs .

  • Projects: Continuing to renovate a house or develop a product that is clearly failing, simply because of the sheer amount of effort already expended.

How to Break Free

Recognising the trap is one thing; learning to avoid it is another. Here are actionable strategies to rewire your decision-making process.

• 1. Focus on Future Costs and Benefits. This is the golden rule. Make a conscious effort to ignore past investments. When faced with a decision, ask yourself: “If I were coming into this situation fresh today, with no prior investment, what would I do based solely on what I can gain or lose from this point forward?” . This mental reset is incredibly powerful.

• 2. Set Clear Goals and Check-Points. Before starting any project, define what success looks like. Set specific, measurable goals and pre-decided check-points to evaluate progress . If the data at that check-point shows the goals are not being met, it becomes a neutral signal to pivot, not a personal failure. This replaces emotional attachment with objective analysis.

• 3. Prioritise Data Over Emotion. It’s easy to get emotionally invested. Counter this by actively seeking out hard data . Look at the numbers, the metrics, the feedback. Is this project yielding the returns? Is this relationship adding to my life? Let the evidence guide you, not the voice of loss aversion in your head.

• 4. Consider the Opportunity Cost. This is a critical concept. When you continue pouring resources into a failing endeavour, you are actively choosing not to use those resources elsewhere . The money, time, and energy spent on a sinking project could be invested in a new, promising one. Ask yourself: “What am I giving up by continuing down this path?”

• 5. Seek an Outside Perspective. We are often the worst judges of our own sunk costs. Our emotions and ego get in the way. Talk to a mentor, a friend, or a colleague who is not emotionally involved . They can provide a clear-eyed view of the situation, unclouded by the investments you’ve already made.

You May Ask

1. What's the difference between the sunk cost fallacy and perseverance?

Perseverance is driven by a logical belief that continued effort will lead to a successful outcome. The sunk cost fallacy is driven by an emotional reluctance to write off past investments, regardless of the future prospect of success. One looks forward with hope; the other looks backward with regret.

2. Is it ever smart to honour a sunk cost?

Rarely. From a purely rational economic standpoint, sunk costs should never influence a decision. However, there can be non-financial considerations. For example, the social impact of closing a mine on a community might be a future ethical cost a company considers, separate from the past sunk financial cost of the mine itself .

3. I feel personally responsible for the initial bad decision. Doesn't that matter?

This feeling is exactly what the sunk cost fallacy feeds on. However, making a subsequent bad decision (continuing to invest) because of a past one only compounds the error. The most responsible thing you can do is make the best decision for the future, even if it means admitting a past mistake .

4. Are some people more susceptible to this than others?

Research suggests that the type of investment might influence its power. Some studies indicate that people may be more susceptible when the sunk cost is money compared to time or effort, possibly because we are better at mentally accounting for financial losses . However, anyone can fall prey to it under the right circumstances.

5. Can a business culture be built to avoid this trap?

Absolutely. A leadership culture that destigmatises failure and rewards data-driven decision-making, rather than blind commitment to past projects, is crucial. Creating an environment where it is safe to say “this isn’t working” and pivot is a powerful defence against the sunk cost fallacy on an organisational level.

Moving Forward, Not Looking Back

The sunk cost fallacy is a powerful reminder that we are human, wired to avoid loss and seek consistency. But by bringing this bias into the light, we can learn to recognise its whisper. The goal is not to become unfeeling robots, but to make space for clearer, more purposeful decisions that are based on where we are going, not on where we have been. The past is already written; its costs are truly sunk. Your future, however, is still yours to shape. Don't let the ghosts of past investments haunt your next move. The most rational, and often the most courageous, step is to cut your losses and walk toward a better opportunity.