Sunk Cost Fallacy
The Past is Irrelevant to Future Decisions
We irrationally continue investments because of costs already incurred, rather than future expected value. The money/time/effort is gone—only future value matters.
The Core Principle
"What you've already invested should have no bearing on the decision to continue. Only future costs and benefits matter."
A "sunk cost" is any cost that has already been incurred and cannot be recovered. The fallacy is when we factor these past costs into future decisions, as if continuing somehow "recoups" the loss. It doesn't—the loss is permanent.
Rational vs Irrational Decision
❌ Sunk Cost Reasoning
"Should I continue?"
• How much have I already invested?
• Won't that all be wasted if I stop?
• I've come this far...
Looking backward. Focused on loss aversion.
✓ Future-Focused Reasoning
"Should I continue?"
• What are the FUTURE costs to continue?
• What are the FUTURE benefits?
• Is there a better use of those resources?
Looking forward. Focused on expected value.
Why We Can't Let Go
Loss Aversion
Losses feel 2x as painful as equivalent gains feel good
Commitment Bias
We want to be consistent with past decisions
Waste Aversion
"Waste" feels morally wrong, even if rational
The Hard Truth
Stopping doesn't "waste" the sunk cost—the cost is already wasted. Continuing just adds MORE cost to the pile. The only question is: is the future investment worth the future return?