Sunk-Cost Fallacy
Continuing something because of what you've already spent, not what it's now worth.
Also known as: Throwing good money after bad, Escalation of commitment
beginner Attributed to Richard Thaler · Behavioural economics
The sunk-cost fallacy is letting unrecoverable past investment — money, time, effort — drive a decision that should depend only on future costs and benefits. Because we hate to "waste" what's spent, we keep pouring resources into failing courses of action.
What it is
A sunk cost is gone no matter what you choose next; rationally, it should be irrelevant to the decision. But psychologically it looms large. Quitting feels like admitting the past investment was wasted, so we keep going to avoid that feeling — and end up wasting far more.
The correct question is always forward-looking: from here, given what I now know, is continuing the best use of my remaining resources? What I already spent can't be recovered by spending more. Yet "we've come too far to stop" and "I can't quit now after all this" are among the most common — and most expensive — sentences in decision-making.
The bias is reinforced by loss aversion (the spent resource feels like a loss we're trying to undo) and by our desire to appear consistent to ourselves and others.
Worked example
You're two hours into a three-hour film that's clearly terrible. Staying "to get your money's worth" is the fallacy: the ticket price is gone whether you stay or leave, so the only live question is how to spend the next hour. Leaving buys back an hour of your life; staying spends it to honour a cost you can't recover. The rational choice ignores the ticket entirely.
How to counter it
Overcorrecting is its own error — "ignore sunk costs" can be misused to justify quitting anything the moment it gets hard, abandoning ventures that were actually worth finishing. Some persistence is warranted by genuine future payoff, not by the past. The test isn't "have I invested a lot?" but "is continuing worth it from here?"
How to apply it
- Ask only about future costs and benefits from this point on.
- Imagine you were arriving fresh today — would you start this now?
- Name the spent resources explicitly and set them aside as unrecoverable.
- Separate "this is hard" (maybe push on) from "this is failing" (maybe stop).
Related entries
Sources & further reading
Thinking, Fast and Slow
by Daniel Kahneman · book
Kahneman links the reluctance to abandon sunk costs to loss aversion.
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