sunk cost fallacy

Meaning

The sunk cost fallacy is the tendency to continue investing time, money, or resources into a failing project simply because of the resources already spent. It represents a cognitive bias where past investments cloud logical decision-making about future outcomes. Recognizing this fallacy helps businesses cut losses early rather than throwing good money after bad.

Examples

• We only kept funding the software project because of the sunk cost fallacy, even though the market had moved on.

  We only kept funding the software project because of the sunk cost fallacy, even though the market had moved on.

• Don't fall victim to the sunk cost fallacy; sometimes the smartest business move is to walk away.

  Don't fall victim to the sunk cost fallacy; sometimes the smartest business move is to walk away.

• Recognizing the sunk cost fallacy allowed the board to pivot to a more profitable product line.

  Recognizing the sunk cost fallacy allowed the board to pivot to a more profitable product line.

• He admitted that his reluctance to close the unprofitable branch was driven by the sunk cost fallacy.

  He admitted that his reluctance to close the unprofitable branch was driven by the sunk cost fallacy.

• The sunk cost fallacy often prevents startups from abandoning flawed business models before they run out of cash.

  The sunk cost fallacy often prevents startups from abandoning flawed business models before they run out of cash.

Common Mistakes

• ✗ We suffered from a big sunk cost.

  ✓ We fell victim to the sunk cost fallacy.

  A 'sunk cost' is just the money already spent (which cannot be recovered). The 'fallacy' is the psychological trap of continuing to spend because of that past cost.

• ✗ I don't want to buy this because of the sunk cost fallacy.

  ✓ I am only continuing this project because of the sunk cost fallacy.

  The fallacy applies to continuing a current investment, not starting a new one.

Related Expressions

Practice

• Continuing to repair that old machinery is a classic example of the ___.

  💡 The bias of investing more just because you already spent a lot.

  Show answer

  sunk cost fallacy

• To make objective decisions, managers must overcome the ___ and focus on future potential.

  💡 A cognitive trap involving past, unrecoverable costs.

  Show answer

  sunk cost fallacy