What is the Sunk Cost Fallacy? The Psychology of Continuing Because of Money Already Spent

Definition

The Sunk Cost Fallacy is irrational decision-making where you continue despite losses because of time, money, or effort already invested. Simply put, it's the "we've come this far, it would be a waste to quit" mentality.

For example, you're watching a movie and after 30 minutes it's really boring. You're sleepy, bored, and want to leave. But you think "I paid $15..." "I came all this way..." and watch until the end. Suffering for 2 hours. That's the sunk cost fallacy. The $15 you paid won't come back whether you watch or not. But because of that money, you lose an additional 2 hours of time and happiness.

Rational decisions should be based on "what I'll gain going forward," not "what I've already invested." Money already spent is called a "sunk cost"—it's sunk into water and can't be recovered. A rational person should ignore sunk costs and only consider "is continuing this beneficial to me from now on?" But humans aren't rational. They keep losing because they regret what they've already invested.

Characteristics

• Fixates on the past - Focuses on "how much I've already invested" and undervalues "how much more is needed going forward." Ruins the future because of an unchangeable past
• Connected to loss aversion - Humans are more sensitive to losses than gains. Losing $10 is twice as painful as gaining $10. So they keep investing because they don't want to admit "I've lost what I already invested"
• Connected to ego - "Giving up" means admitting "my choice was wrong." Pride gets hurt. So they continue. It's easier to lose money than to admit "I was wrong"
• Stronger with larger investments - Easy to give up on a $10 investment, but really hard to give up on a $100,000 investment. The larger the investment, the deeper you fall into the sunk cost fallacy
• Others' opinions also matter - When others are watching, you continue because you don't want to look like a "quitter" or "failure." Thinking "I'll show them I can succeed"

Examples

Example 1: Romantic Relationships You've been dating someone for 3 years. Lately you fight often, your values don't match, and it's uncomfortable when you meet. You think "is breaking up the answer?" but continue meeting, thinking "we've been together for 3 years..." "all the time I've invested would be wasted..." But just because 3 years is regrettable doesn't mean you should spend 10 more years unhappy. The 3 years already invested won't come back. What matters is "will this relationship make me happy from now on?" If the answer is "no," you should choose the next 10 years over the past 3 years.

Example 2: College Major You're studying law but it really doesn't suit you. You don't want to do it and your grades are bad. You're actually interested in design. But you keep going, thinking "I've already done 2 years," "my parents will be disappointed," "the tuition would be wasted." You eventually graduate but don't become a lawyer, and end up going to design school. You wasted 4 more years because 2 years felt regrettable, and started doing what you wanted too late. If you'd transferred or re-enrolled in year 2, you would have found your happy path much sooner.

Example 3: Business Investment A friend starts a chicken restaurant and you invest $100,000. After 6 months, business is bad. It's losing money every month. Even experts say the location is poor, competition is fierce, and chances of recovery are low. The rational thing would be to close quickly. But you keep pouring money in, thinking "I invested $100,000," "if I give up now, I'll lose everything." You change the interior, advertise, change the menu... Eventually you spend $300,000 over 2 years and close. If you'd closed after 6 months, you would have only lost about $120,000, but because $100,000 felt regrettable, you lost $300,000.

Example 4: Online Games You've spent $5,000 on a game over 3 years. You've leveled up your character, bought items, and invested tons of time. But now the game isn't fun anymore. You don't want to play. But you continue, thinking "I spent $5,000," "I've leveled up this far." You log in out of obligation, participate in events even though they're boring... That money and time are already spent. They won't come back if you keep playing. What matters is "does this game make me happy now?" If the answer is "no," you should quit.

Example 5: Car Repairs Your 10-year-old used car broke down. Repairs will cost $3,000. The used market price is $4,000. Rationally, repairing is the better choice. But you've already spent $5,000 on repairs for this car. "Repair it again? How much have I already poured into this car!" You're angry. But the $5,000 already spent is irrelevant to the current decision. What matters is "if I pay $3,000 now, I can use a car worth $4,000." Rationally, repair is correct, but because of money spent in the past, you make a more expensive choice (buying a new car).

How to Overcome

Here's how to escape the sunk cost fallacy.

Step 1: Recognize Sunk Costs First, identify what is a sunk cost. Money already spent, time already used, effort already made... these can't be undone. No matter how regrettable and unfair, they won't come back. "Already invested" is a sunk cost.

Step 2: Zero-Based Thinking Ask yourself "if I were starting fresh now, would I do this?" For example, at the movie theater: "if I had the chance to watch this movie for free now, would I watch it?" In a relationship: "if I met this person today for the first time, would I want to date them?" In business: "if I were starting fresh now, would I do this business?" If the answer is "no," you should quit.

Step 3: Focus on the Future Look at the future, not the past. Think not "we've come this far" but "where will I go from here?" The criteria for decisions should be "profit I'll gain going forward," not "cost I've already spent."

Step 4: Separate Emotion from Fact The "feeling of regret" and "actual loss" are different. I understand the emotion "I regret $100,000," but that emotion isn't a reason to lose another $200,000. Acknowledge the emotion, but make decisions based on facts and numbers.

Step 5: Calculate Opportunity Cost What am I missing by continuing this? In the 2 hours you're watching a boring movie, you could meet friends, read a book, or take a walk. In the 4 years you're continuing an unsuitable major, you could become an expert in a field you love. In the time you're clinging to a failed business, you could find new opportunities. Thinking about opportunity cost makes giving up easier.

Step 6: Borrow Others' Perspective What would you advise if a friend were in this situation? "Just leave. The movie's boring." "Break up with them. You look unhappy." Wouldn't you say that? You view your own problems emotionally, but others' problems objectively. View your situation like someone else's problem.

Step 7: Experiment Small If completely giving up is hard, try a small experiment. Not playing the game for a month, not meeting for two months, stopping new business investment... If you try small steps, you can confirm "oh, I'm fine without it" or "I do need this."

Step 8: Set Limits Set a clear standard in advance: "I'll invest this much more, and if it doesn't work, I'll quit." For example, "I'll try for 3 more months, and if sales don't reach break-even, I'll close," "I'll meet for 6 more months, and if I'm still unhappy, I'll break up." If you set criteria with numbers and time rather than emotions, decisions become easier.

Step 9: Redefine Failure as Learning "Giving up" ≠ "failure." Think of it as "learned," "changed direction," "made a better choice." In Silicon Valley, they say "Fail Fast, Learn Fast." Giving up isn't failure, it's a wise choice.

Step 10: Ask Experts or Third Parties If it's hard to decide alone, ask experts. Financial advisors, career coaches, psychologists... They can advise objectively because they're not emotionally entangled. Close friends or family are good too. Ask "am I in too deep?"

Impact

Positive Aspects

• Maintains perseverance - Not all giving up is good. If you give up easily when things are hard, you can't succeed. The sunk cost fallacy creates some perseverance and patience. The "we've come this far" mindset can help you overcome the last hurdle
• Maintains relationships - If you cut off relationships immediately after one fight with a friend or partner, relationships won't last. The "we've been through this much together" feeling can help repair relationships
• Pursues long-term goals - Even when it's hard short-term, the "I've invested this far, a little more" mindset can help achieve goals

Negative Aspects

• Wastes money and time - You lose more money because already spent money feels regrettable. You waste more time because already spent time feels regrettable. Losses snowball
• Loses opportunity cost - You miss new opportunities by clinging to a failed project. You sacrifice "what you'll gain going forward" to protect "what you've already invested"
• Stress and unhappiness - You're unhappy forcing yourself to continue things that aren't fun or suitable. Daily stress, no motivation, quality of life drops
• Justifies bad decisions - You continue clearly wrong decisions with the logic "I've invested this far, I should continue." You don't admit failure and fall into bigger failure
• Corporate and national policy failures - Large projects (e.g., road construction, IT systems) clearly failing, but continuing because "we've already invested hundreds of millions." Eventually wasting billions

FAQ

Q: What's the difference between the sunk cost fallacy and perseverance? A: Really important question. The difference is in "future prospects." Perseverance is when you have a rational expectation "it's hard now but will improve going forward." If a startup is losing money but market analysis suggests future growth, it's right to persevere. On the other hand, the sunk cost fallacy is continuing "it probably won't work going forward either, but I've already invested" because of past investment. How to distinguish: 1) What does objective data say? If experts, market research, and numbers say "it's possible," it's perseverance; if they say "impossible," it's fallacy. 2) If starting fresh from the beginning, would you do it? If "I'd still do it," it's perseverance; if "I'd never do it," it's fallacy. 3) Without emotion? If there's realistic basis beyond hope, it's perseverance; if continuing only because "it's regrettable" without basis, it's fallacy.

Q: What I've already invested is too big to give up. What should I do? A: It's natural that the bigger the investment, the harder it is to give up. But think about it this way. You've already lost $100,000. There are two options: 1) Stop now and end with a $100,000 loss, 2) Continue and lose another $300,000. Which is better? $100,000 is a lot of money, but $300,000 is more. "I've already lost a lot, so let's not lose more" is rational. "I've already lost a lot, so let's invest more to make it back" is gambler's logic. You often hear stories of people who lost $100,000 at a casino, bet another $200,000 because they regretted the $100,000, and ended up losing $300,000 total. Same principle. And you're not completely throwing away what you've already invested. What you learned from that experience, the people you met, the lessons you gained remain. You can use that to make better choices next time.

Q: I'm worried others will say "you give up easily," "you have weak will." A: Others' eyes are a big factor strengthening the sunk cost fallacy. But think about it. Do those people take responsibility for your life? Do they compensate for the money you lost? No. Your life is yours. Your happiness is more important than others' evaluations. And in reality, people don't care as much as you think. Everyone's busy with their own lives. Not many people will remember what choice you made a year later. Actually, people often respect those who wisely change direction. "They make decisions quickly," "brave." And people who truly care about you hate seeing you unhappy more. They won't criticize you for "giving up," they'll support you saying "you decided well."

Q: Can the sunk cost fallacy be used to manipulate people? A: Unfortunately, it's used a lot. The most common is the "foot-in-the-door" persuasion technique. Make a small request first to get acceptance, then gradually make bigger requests. It makes it hard to refuse, thinking "I've already done this much." For example: 1) Cults or scam organizations start with free lectures, then cheap introductory courses, then expensive regular courses... making you invest step by step. 2) Unscrupulous sellers take a deposit first, then keep demanding additional costs later. "You've already paid the deposit, will you cancel?" 3) In unhealthy relationships, they hold you with words like "we've dated this long," "if we divorce, what about the kids?" How to recognize these situations? If you see signs like "different from the original promise," "continuous additional demands," "preventing you from leaving," be careful. Even if what you've already invested feels regrettable, getting out quickly is less loss.

Q: I want to stop a failed project at work, but my boss says "we've come this far." A: Organizations have much worse sunk cost fallacy. It's not personal money so they don't feel the loss, they don't want to admit it due to political responsibility, and decisions are slow because multiple people are involved. How to cope: 1) Speak with data - Show with numbers, not emotion. Like "Invested $5 million so far, need $3 million more, expected profit $2 million. If we continue, $6 million loss." 2) Propose alternatives - Don't just say "let's quit," propose "if we do this instead, it's more efficient." 3) Small evidence first - Propose testing by stopping for a month. Small steps are easier to approve. 4) Frame as learning, not failure - Not "this project failed" but "let's use lessons from this project next time." 5) Use external consultants - Even if they don't listen to internal people, they often listen to expensive external experts. If that doesn't work? If you're not the decision-maker, what you can do is limited. Keep records ("I gave this opinion"), and make sure responsibility doesn't come to you when it fails.

Q: Can I completely avoid the sunk cost fallacy? A: Completely is difficult. The human brain evolved to work that way. For our ancestors, "perseverance" and "protecting investments" were advantageous for survival. If they gave up after one failure, they would have starved. But modern society is different. There are many choices, many opportunities, and no need to fixate on one thing. So you need to make conscious efforts. What's important isn't being confident "I don't fall into the sunk cost fallacy" but recognizing "I could fall into it, so I should be careful." Every time you make a big decision, ask yourself "am I continuing this because of sunk costs?" That alone can prevent many mistakes.