Ever found yourself watching a bad movie till the end just because you paid for the ticket? That, my friend, is the sunk cost fallacy at work. It’s a curiously human tendency to stick with something—no matter how unpleasant, unfruitful, or downright disastrous—because of the resources we’ve already invested. Understanding this mental quirk could be key to making better life choices.
What is the sunk cost fallacy?
At its core, the sunk cost fallacy boils down to this: We base our decisions on past investments instead of future outcomes. Those investments, be it money, time, or effort, are gone—sunk, hence the term. Yet, they somehow weigh heavily in our minds, steering us into irrational choices.
In psychology and behavioural economics, this phenomenon ties to our aversion to loss. The human brain despises waste. Even when logic tells us those past costs are irretrievable, our emotions scream, “You’ve come this far—don’t give up now!”
Imagine buying a dress that doesn’t fit properly. Instead of returning it, you keep it—and maybe even wear it—because you’ve already paid for it. Relatable, right? This fallacy sneaks into more serious situations too.
How the sunk cost fallacy impacts decision-making
The sunk cost fallacy doesn’t just make us endure mediocre entertainment or shelf ill-fitting clothes. It can influence critical areas of our lives, from relationships to careers to finances.
Relationships and the sunk cost fallacy
Why do people stay in toxic relationships longer than they should? Often, it’s the sunk cost fallacy whispering, “But we’ve been together three years!” Those memories, mutual friends, and shared milestones turn into emotional investments that bind us.
The same dynamic plays out with friendships, where the history you’ve built may stop you from recognising when a connection has turned one-sided. We avoid cutting ties, even if it’s the healthiest option, simply because we’ve already poured so much of our hearts into the bond.
Curious Alexander
Career decisions influenced by sunk costs
Ever known someone stuck in a job they despise or a project that’s going nowhere? (Or maybe you’ve been that someone yourself.) That feeling of “I’ve already put 10 years into this role” or “I’ve sunk months into this project” can trap even the smartest professionals.
It’s not just about jobs; students experience this too. Many pursue degrees they’ve lost interest in, telling themselves they’re already halfway through, so they better just finish. Meanwhile, their passion fizzles out like a damp sparkler.
Financial investments and sunk costs
Investments might be the flashiest playground for the sunk cost fallacy. Stockholders hold onto declining shares, refusing to sell because admitting loss feels unbearable. Business owners pour money into failing ventures, justifying every extra penny as “rescuing” their investment.
This faulty logic ignores one crucial truth: Throwing in more resources doesn’t change the outcome. It’s often the financial equivalent of tossing buckets of water into a sinking ship.
The psychology behind the sunk cost fallacy
How does this pesky bias keep tricking us? Three mental tendencies are at play.
- Loss aversion: We hate losing so much that we’ll risk more just to avoid admitting we’ve lost. Basically, regret avoidance runs the show here.
- Commitment bias: Humans like to see themselves as consistent. Throwing in the towel feels like admitting we were wrong (and who wants to do that?).
- Over-optimism: Often, we convince ourselves that things will improve if we just give it one last push. Spoiler alert: Sometimes, things don’t improve.
These psychological drivers combine to create a perfect storm of irrational behaviour. But knowledge is power—once you understand these tendencies, you can start wrestling back control.
How to overcome the sunk cost fallacy
So, how do you break free from this mental trap? It requires a mix of self-awareness, rational thinking, and learning to let go. Here’s where to start:
Identifying sunk costs
The first step is recognising sunk costs for what they are: irrelevant to future decisions. Start asking yourself questions like, “Are my past efforts influencing this choice? Is that logical?” Brutal honesty with yourself goes a long way here.
Practising rational decision-making
Rationality isn’t just for philosophers. You can use a simple cost-benefit analysis to weigh choices more objectively. Focus on future value. What’s likely to yield benefits from this point forward? Forget about what’s already been lost.
Another tool: Seek advice from someone uninvolved in the situation. They’re free from emotional baggage and can offer a clearer perspective.
Learning to let go
Letting go isn’t easy—there’s no sugar-coating it. But sometimes, it’s the most courageous move. Change can be terrifying, but clinging to an unproductive path only extends the pain.
Think of it like pruning a tree. It might feel sad to cut away those branches, but it paves the way for new growth. Learning to move forward could lead to greater opportunities, healthier relationships, or simply peace of mind.
What’s the bigger picture here?
Understanding the sunk cost fallacy isn’t just an academic exercise; it’s a mindset shift. When you stop letting past investments define your present, you open the door to clearer, wiser choices. Whether it’s ditching a terrible film halfway through or walking away from a decade-long career you’ve outgrown, recognising sunk costs can set you free.
So, next time you catch yourself saying, “But I’ve already come this far...”, pause. Ask yourself if sticking around will actually make things better—or if you’re just kidding yourself. Decisions made for the right reasons, not out of guilt or stubbornness, are the ones that’ll pay off. Ready to let the past stay in the past?
Further reading
Thinking, Fast and Slow by Daniel Kahneman
Nobel laureate Daniel Kahneman explores the dual systems that drive our thinking—System 1 (fast, intuitive) and System 2 (slow, deliberate)—revealing the biases and errors that influence our decisions.
The Art of Thinking Clearly by Rolf Dobelli.
Rolf Dobelli delves into common cognitive biases and errors, offering insights into how to make better decisions by recognizing and avoiding these mental pitfalls.
Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler.
Richard H. Thaler and Cass R. Sunstein discuss how subtle policy shifts and choice architectures can influence behaviors in predictable ways without restricting freedom of choice.
Predictably Irrational: The Hidden Forces That Shape Our Decisions by Dan Ariely.
Dan Ariely examines the systematic and predictable ways in which humans make irrational decisions, shedding light on the hidden biases that influence our choices.
Blink: The Power of Thinking Without Thinking by Malcolm Gladwell.
Malcolm Gladwell explores the power and limitations of our instinctive, rapid judgments, and how snap decisions can both benefit and mislead us.
Join the conversation
What decisions have you held onto because of the time, effort, or money you’ve already spent? How did you break free—or are you still wrestling with the sunk-cost fallacy? Join the conversation in the comments below and share your story—we’d love to hear your thoughts.
