Sunk Cost Fallacy

A cognitive bias that describes the human tendency to let past investments of money, time, or energy in an activity influence decisions about whether to continue with that activity, regardless of the future costs or benefits.

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Key Insights & Principles

Personal Finance

1. Money already spent should not impact financial decisions.
2. We tend to make poor financial decisions when we account for money already invested.
3. The sunk cost fallacy often occurs because we do not want to appear wasteful, or we want to appear consistent and credible.

1. Ignore sunk costs. Only assess future costs and benefits.
2. Do not base investment decisions on acquisition costs, only future expectations.

Decision Making

1. We fall victim to the Sunk Cost Fallacy when we are reluctant to write off past efforts or investment, and change a decision, even when we know it would be best to do so.
2. Quitting takes more guts than continuing.
3. We make poor decisions when we fear taking responsibility for losses, and end up continuing to throw good time or money after bad.
4. The Sunk Cost Fallacy becomes stronger the more money, time, or energy we invest in something.

1. When making decisions ignore time, money, or energy already spent on an activity.

Book References