The Sunk Cost Fallacy: Why We Stick to Bad

Decisions
What It Is: The sunk cost fallacy is when we continue investing time, money, or effort into
something because we’ve already spent resources on it, even though it no longer makes
sense to keep going. Essentially, we let past investments dictate future decisions, even when
those investments are unrecoverable, or “sunk.”

Sunk Cost Fallacy

Decision-Making
The process of
choosing to continue or
stop based on past
investments.
Emotional
Past Investments Attachment
The resources already The feelings that tie
spent that influence individuals to their past
future decisions. choices, making it hard
to let go.

In Simpler Terms: It’s like continuing to watch a terrible movie just because you’ve already
spent 30 minutes on it, thinking, “I’ve come this far, might as well finish it.” Even though you’re
not enjoying the movie, you don’t want to feel like the time you’ve already spent is wasted.

Finish or Quit?

Finish Movie Quit Movie

Waste Time Save Time

Examples:

1. Staying in a Bad Relationship

You’ve been in a relationship for 3 years, but it’s clear things aren’t working anymore. Despite
being unhappy, you think, “But I’ve already invested so much time and energy in this
relationship. I can’t just walk away now.” This is the sunk cost fallacy in action—staying because
of the past investment rather than focusing on whether it’s the right choice for your future.

Stay or Leave?

Stay Leave
Continue despite Prioritize future
unhappiness happiness

2. Continuing a Course or Degree You Hate

Imagine you’ve already paid for two years of an engineering degree, but halfway through,
you realize your passion lies in graphic design. Instead of switching fields, you keep going
because you’ve already spent time and money. You think, “I’ll waste all those years if I quit
now.” This is a classic example of the sunk cost fallacy—you ignore that future happiness and
success are more important than sunk time and money.

Pursue Passion or Stay?

Stay in Engineering Switch to Design

Continue despite Follow true passion
disinterest

3. Buying Expensive Event Tickets

You’ve bought an expensive ticket to a concert, but on the day of the event, you’re sick and
really don’t feel like going. Still, you think, “I’ve already paid for the ticket, I can’t just waste it.”
Even though staying home would make you feel better, you force yourself to go because you
don’t want to feel like you’ve wasted your money.

Attend or Rest?

Attend Concert Stay Home

Waste Ticket Cost Prioritize Health

4. Finishing a Bad Book

You’re halfway through a book, but it’s boring and you’re not enjoying it at all. Instead of
putting it down, you think, “I’ve already spent 4 hours reading this; I have to finish it.” You keep
going even though you could be spending your time reading something you actually enjoy,
simply because you don’t want to “waste” the effort you’ve already put in.

Finish or Quit?

Finish It Quit It
Waste time Enjoy reading

5. Investing in a Failing Business

You’ve been running a business for a few years, but it’s losing money. Instead of cutting your
losses and moving on, you keep pouring money into it, thinking, “I’ve already invested lakhs
into this; I can’t give up now.” Even though there’s little chance of recovery, you keep going
because of all the resources you’ve already spent.

Invest or Exit?

Invest More Cut Losses

Risk of Greater Loss Free Up Resources

Scientific Study

A study by Hal Arkes and Catherine Blumer (1985) demonstrated the sunk cost fallacy in a
business context. They presented participants with a scenario where a company had already
invested $10 million into a product that wasn’t performing well. The logical choice would be to
stop investing, but because they had already spent so much, participants often
recommended continuing to pour more money into the failing project. This shows how
people’s decisions can be biased by past investments rather than focusing on what’s best
moving forward.

Sunk Cost Fallacy in Business Decisions

Initial
Investment Poor Product
Decision-
Performance
Making Bias Towards
Scenario Continued
The company Focus on Past
Investment
invests $10 The product Investments
million into a fails to meet Participants
product. performance are presented Participants
expectations. with the recommend Decisions are
investment further influenced by
scenario. investment the initial
despite poor investment
performance. rather than
future
potential.

Why Do We Fall for the Sunk Cost Fallacy?

1. Loss Aversion: Humans hate losing something they’ve already invested. We prefer to
“save” the investment, even if it’s irrational.
2. Emotional Commitment: We often feel emotionally tied to things we’ve put time or
effort into. Letting go feels like a personal failure.
3. Fear of Wasting Resources: The fear of wasting what’s already spent—time, money, or
effort—leads us to stick with decisions even when it’s better to walk away.

Sunk Cost Fallacy

Fear of Wasting
Loss Aversion Resources

Emotional
Commitment

How Understanding the Sunk Cost Fallacy Can Help in Personal

Development:

1. Focus on Future Gains, Not Past Losses: Understanding this fallacy helps you shift your
focus from the past to the future. Ask yourself, “Will this decision benefit me moving
forward?” rather than “How much have I already invested?”
2. Let Go of the Fear of Wasting: By recognizing that past investments are already “sunk”
and can’t be recovered, you can free yourself from the mental burden of loss and
make clearer, more rational decisions.
3. Practice Making Decisions Based on Value, Not Investment: Whether it’s time, money,
or effort, make choices based on the current and future value of a situation. This
mindset helps in everything from career choices to personal relationships.
4. Improve Financial and Time Management: Understanding the sunk cost fallacy helps
you manage your resources more wisely. Whether it’s deciding when to stop investing
in a business, or when to cut off a project that’s not working, this awareness leads to
smarter, more calculated decisions.

Overcoming the Sunk Cost Fallacy

Smart Resource Management

Use insights to manage time and
finances more effectively.

Value-Based Decisions
Make choices based on current and
future value rather than past costs.

Let Go of Fear
Release the mental burden of past
losses to make clearer decisions.

Focus on Future Gains

Shift your mindset to prioritize
future benefits over past
investments.

Final Takeaway

We all fall for the sunk cost fallacy at times—it’s human nature. But recognizing it in our daily
lives allows us to make better choices, focusing on what serves our future rather than being
trapped by past investments. Embrace this concept to stop throwing good time, money, or
effort after bad, and focus on making decisions that align with your true goals.

Embrace Sunk Cost

Fallacy
Focus on future goals, not
How to make past investments.
better choices? Continue Sunk Cost
Fallacy
Risk throwing good
resources after bad.