Sunk Cost Fallacy
The tendency to continue investing in something because of past investments, even when it's not rational.
What It Is
The sunk cost fallacy is the tendency to continue a behavior or endeavor as a result of previously invested resources (time, money, or effort). People irrationally factor in costs that have already been incurred and cannot be recovered when making decisions about the future. Rational decision-making should only consider future costs and benefits.
Why It Matters
This fallacy leads to throwing good money after bad and staying in failing situations too long. Whether it's a bad investment, a failing project, or an unhappy relationship, people often continue because they've already invested so much. Recognizing this fallacy helps you cut losses and redirect resources to better opportunities.
How to Apply It
- 1
When making decisions, ignore what you've already spent (it's gone regardless)
- 2
Ask: "If I were starting fresh today, would I make this same choice?"
- 3
Focus only on future costs and benefits
- 4
Set clear criteria for when to quit before you start
- 5
Remember: the best time to quit is often earlier than you think
Example
You've watched 6 episodes of a 10-episode series that you're not enjoying. The sunk cost fallacy makes you think "I've already invested 6 hours, I should finish it." Rational thinking says "Those 6 hours are gone. Would I rather spend 4 more hours on this or doing something I'd enjoy?"