The sunk cost fallacy is the tendency to continue an endeavour because of previously invested resources — time, money, or effort — rather than because of its expected future value. Rational economic theory holds that sunk costs are irrelevant to future decisions: what has already been spent cannot be recovered, so only future costs and benefits should influence the choice of whether to continue. In practice, human beings consistently violate this principle.

The concept has a long history in economic thought. Nineteenth-century economists observed that past expenditures should not influence forward-looking decisions, though the term "sunk cost" and its formalisation as a cognitive bias belongs largely to twentieth-century behavioural economics. The core idea is simple: throwing good money after bad does not recover the bad money. It only adds to the loss.

Why We Fall for It

Several psychological mechanisms drive the sunk cost fallacy:

• Loss aversion. Humans feel losses more acutely than equivalent gains. Abandoning a failing project feels like a concrete loss; continuing it preserves the possibility of eventual recovery, however unlikely. The mind treats the sunk cost as a potential loss that might still be avoided.
• Commitment and consistency. Having publicly committed to a course of action — told friends about the investment, announced the project to colleagues — makes reversal psychologically costly. Abandonment feels like an admission of error.
• The waste aversion narrative. "I've already paid for the ticket, so I have to go even though I'm ill" treats the ticket price as a reason to act rather than an irreversible historical fact. The ticket is gone whether you go or not. Feeling unwell is the only relevant present consideration.
• Narrative completion. Humans think in stories, and unfinished stories feel unresolved. Quitting before an outcome is reached violates a narrative impulse that has nothing to do with rational decision-making.

The Fallacy in Practice

Sunk costs contaminate decisions across almost every domain:

• Investing: Holding a losing stock because of how much you paid for it, rather than its expected future performance. The acquisition price is irrelevant to its future trajectory.
• Projects: Continuing a software project, a film production, or an infrastructure build that has already consumed far more than budgeted — not because completion is worth the additional cost, but because stopping feels like "wasting" what was already spent.
• Relationships: Staying in an unsatisfying relationship because of how many years have already been invested. The years are gone. The question is only what the next years will look like.
• Dining: Overeating because you paid for the buffet. The price is gone. Your body's experience of the next hour is the only relevant variable.
• War: Continuing military campaigns long after the strategic rationale has evaporated, because withdrawing would mean that soldiers "died for nothing." The soldiers' deaths cannot be undone by further fighting; future decisions should be made on future outcomes alone.

How to Escape the Sunk Cost Trap

The core mental move is separating the past from the future. When evaluating whether to continue any endeavour, ask: If I had not already invested anything, would I choose to start this from scratch today? If the answer is no, the sunk cost is distorting the decision.

Useful practical approaches:

• Reframe the decision as a new choice. Pretend the previous investment never happened. Would you make this choice fresh? If not, the sunk cost is doing work it shouldn't.
• Set pre-commitment rules. Before beginning a project or investment, decide in advance what outcome would trigger a stop. Honour that commitment when it arrives.
• Separate self-worth from the investment. A great deal of sunk cost reasoning is about ego. Quitting is not a verdict on your intelligence or character; it is a rational response to new information.

Recognise It in Context

The sunk cost fallacy is one of the most common and costly reasoning errors in real life. Practise identifying it in the Dojo, where it appears across investment, project management, and everyday domestic scenarios. The Library connects it to related biases including Loss Aversion and the Commitment effect.