Sunk Cost Fallacy
Money & Trading
The sunk cost fallacy is continuing an endeavor because of what you've already invested — money, time, effort — rather than because of what lies ahead. Sunk costs are gone; only future costs and benefits should matter.
What it looks like
You sit through a terrible movie because you paid for the ticket. You finish a meal you're not enjoying because it was expensive. You stay in a failing business because of the years already poured into it.
In each case, the past investment is unrecoverable whether you continue or quit — but it still pulls the decision.
In trading and money decisions
A trader holds a position down 60% because they've already lost too much to sell now, or keeps adding to a failing thesis to justify the original entry. The money already lost is irrelevant to whether holding is a good bet today.
The useful question is always: if I didn't own this, would I buy it now at this price? If not, the sunk cost is doing the talking.
Common questions
- What is a real-life example of the sunk cost fallacy?
- A company keeps funding a failing project because it has already spent millions on it. The millions are gone either way; the only rational question is whether future spending will earn a return.
- Why is the sunk cost fallacy so hard to avoid?
- Quitting feels like admitting the past investment was wasted, which is painful. Continuing lets us postpone that admission — so the bias is really about avoiding the feeling of loss and failure.
- How do you escape sunk cost thinking?
- Reframe the decision as if you were starting fresh today, set kill criteria in advance, and ask someone uninvolved whether they'd make the same commitment now.
Related biases
- Anchoring BiasAnchoring bias is the tendency to rely too heavily on the first piece of information you encounter — the anchor — when making judgments, even when that number is arbitrary or irrelevant.
- Confirmation BiasConfirmation bias is the tendency to seek out, favor, and remember information that supports what you already believe — while dismissing or never even encountering evidence against it.
- Loss AversionLoss aversion is the finding that losses feel roughly twice as powerful as equivalent gains — losing $500 hurts far more than winning $500 feels good, so people go to great lengths to avoid losses.
Check your own reasoning
Paste the thinking behind your next decision and see which biases are likely shaping it.
Open the Bias Checker