Sunk Cost Fallacy: Why We Can’t Let Go

If you’ve continued with a decision or an investment of time, money, or resources long after you should have stopped, you’ve succumbed to the sunk cost fallacy (Ronayne et al., 2021).

You’re not alone; most of us have.

This cognitive bias is commonplace. Psychology recognizes that to avoid being overwhelmed and successfully negotiate our environment, we must make powerful — often immediate — decisions (Szpiro, 2020).

However, there is a problem: Such decisions are often wrong.

This article helps us understand the nature of the sunk cost fallacy, its impact, and how we can help ourselves, our colleagues, and our clients spot and manage it better.

Before you continue, we thought you might like to download our three Positive CBT Exercises for free. These science-based exercises will provide you with detailed insight into positive Cognitive-Behavioral Therapy (CBT) and give you the tools to apply it in your therapy or coaching.

Sunk Cost Fallacy: A Definition

Humans routinely use rules of thumb to navigate their environment and interact with the objects and people they encounter. Psychologists suggest that these heuristics “serve as shortcuts, especially when decisions must be made in uncertain situations” (Szpiro, 2020, p. 188).

While heuristics simplify complex tasks involving assessing probabilities and predicting outcomes, saving cognitive load, they have a cost. Such predictions are often wrong (Szpiro, 2020).

The sunk cost fallacy is one such example, and it happens all the time.

Davis (2019, p. 183) defines it as “the tendency of a decision maker to continue on an endeavor, after some type of investment, such as money or time, has been made and is not recoverable.” It can lead us to continue with something even when it is clearly time to quit.

Another definition of the sunk cost fallacy also highlights our willingness to throw good money after bad, as the saying goes.

“A person who has invested time, money, and effort in an endeavor may be loath to abandon it, even if it turns out that it is no longer profitable, or a better alternative has become available” (Szpiro, 2020, p. 197).

With regard to decision-making, the sunk cost fallacy is driven by a desire not to see our prior investments or decisions go to waste, which effectively mismanages our mental account of cost versus value (Davis, 2019).

Unsurprisingly, this psychological term is a vital component of economic theory. Individuals, groups, organizations, and even governments irrationally continue to throw money into a project or idea even when it clearly is going badly (Davis, 2019).

What Are Sunk Costs?

Sunk costs have already been incurred and cannot be recovered or changed. We are unable to retrieve or alter what we have spent (time, money, emotional energy, etc.), yet we are still willing to increase our investment (Szpiro, 2020).

These costs can take various forms, be they personal or related to work (MacNeil, 2024).

• Time spent, some of which we could have invested elsewhere
• Effort and energy, particularly on more challenging tasks
• Mental strain, including any associated anxiety, stress, and worry
• Resources, such as facilities, materials, and equipment
• Financial investments potentially involving purchasing new technology or premises, etc.
• Nonrefundable costs, including legal fees, advertising, etc.

Research recognizes each one as a potential element in the sunk cost fallacy. As sunk costs grow, so does our commitment to the sunk cost fallacy (Davis, 2019).

In a 1976 study, business school students were asked to choose where to invest research and development funding. Surprisingly, if their prior investment decisions had adverse outcomes, they were more likely to commit even more resources (Davis, 2019).

It seems our willingness to keep increasing our sunk costs is shaped by the mistakes we have made in the past (Davis, 2019).

The Psychology Behind the Sunk Cost Fallacy

Why, even after a significant loss, do we continue and even increase our commitment to the sunk cost fallacy?

Psychology theory and research offer the following rationale and processes behind the sunk cost fallacy (Davis, 2019; Reinstein et al., 2017; Szpiro, 2020).

• Loss aversion
  As our sunk costs increase, so does the potential loss associated with the task, idea, project, or commitment. We remain committed to possible gains and fearful of the real risk of losing an investment, particularly a large one.
• Justification and rationalization
  As the sunk costs increase, we are less able to admit our mistakes or poor decisions. By committing more to the fallacy, we continue to justify our initial and ongoing investment, even when it is not rational to do so.
• Social pressure and reputation
  Context plays a vital role in the fallacy. If our reputation is at stake, we may feel pressure from others to continue our investment. The fear of being seen as a failure can contribute to an even stronger commitment to the sunk cost.
• Cognitive dissonance
  Holding conflicting beliefs or values is uncomfortable. We may continue with our investment rather than abandon it to manage or remove the discomfort.
• Emotional attachment
  As a task, project, or commitment continues, we grow more emotionally attached, making it more challenging to let go.
• Over-optimism
  An overly optimistic belief that the investment will pay off or that the decision was the right one can also play a part in the continuing fallacy.

Ultimately, the ongoing sunk cost fallacy is driven by our desire to feel that an initial investment or decision was not wasted. We fear the regret associated with recognizing we’ve made a mistake (Szpiro, 2020).

On a final note, it’s essential to recognize that our biases don’t exist in a vacuum.

The status quo bias, for example, involves the preference for “doing nothing or maintaining one’s current or previous decision” (Samuelson & Zeckhauser, 1988, p. 7). It is, therefore, consistent with loss aversion and the sunk cost fallacy. Continuing to do the same thing even if it’s proving unhelpful or damaging is an attempt to maintain the status quo.

Practical Examples From Life

The sunk cost fallacy is commonplace and found across all life domains, as the following examples highlight (Davis, 2019; MacNeil, 2024).

In business and investing: Construction

In 1981, the Tennessee-Tombigbee Waterway Project was well over budget, and the funding was up for congressional review (Davis, 2019).

Despite only being halfway through, and with costs spiraling out of control, the senators decided to continue plowing money into the project, saying “terminating the project at this late stage of development, would, however, represent a serious waste of funds already invested” (Davis, 2019, p. 183).

A later review suggested that the costs of completing the project may have outweighed the benefits, making the continued construction a poor decision (Davis, 2019).

In business and investing: Aviation

The British and French governments had invested a staggering $2.8 billion even before the world’s first passenger-carrying supersonic jet, the Concorde, had taken its first commercial flight (MacNeil, 2024).

Despite continuing costs and running at a loss rather than a profit, it continued for a further 27 years.

For that reason, the sunk cost fallacy is sometimes referred to as the Concorde fallacy (MacNeil, 2024).

In personal life

There are many examples of the sunk cost fallacy in our personal lives. We often continue investing time and energy and sticking to our original plan long after it is time to let go.

Here are several commonplace examples (MacNeil, 2024; Tait & Miller, 2019; Reinstein et al., 2017):

• Practicing an instrument you no longer enjoy playing
• Watching a movie that is no longer enjoyable because it’s paid for
• Reading to the end of a book that you find uninteresting
• Working on a personal project that is not yielding the desired results
• Eating a meal you cooked despite not liking it
• Holding on to an item of clothing you never wear
• Keeping a car that requires constant attention and rising repair bills
• Keeping outdated technological equipment just in case you need it in the future
• Staying in a long-term relationship despite knowing it’s not right for you

How to Recognize This Delusion

It is vital to remember that the sunk cost fallacy is a cognitive bias and is not usually based on rational decision-making (Davis, 2019).

For an individual to move forward and make sound decisions and investments (of time or money) based on current and future costs and benefits, they must disconnect from the bias arising from the past (Davis, 2019).

Business psychology and the workplace offer several helpful tips for recognizing when we are at risk of buying in to the sunk cost fallacy in any life domain (MacNeil, 2024; Ronayne, Sgroi, & Tuckwell, 2021).

• Maintain awareness
  If you are aware of the sunk cost fallacy, you are less likely to be drawn into using it (MacNeil, 2024).
• Challenge yourself
  Use variations on the following questions to check for cognitive bias:

What am I worried about losing?
How is my fear holding me back or stopping me from letting go?
What is the likelihood that I will succeed in what I am doing?
Is my fear of what others will think leading me to make poor decisions?

• Data-based decisions
  Understanding the data and information around you will help you recognize when you are falling into a damaging thinking trap (MacNeil, 2024).

Consider the following:

What am I measuring (formally or informally)?
What is it telling me?
Are the results what I expected?
Does the data suggest my cost exceeds the potential reward?

• Capture your options and decisions
  List your options and how they align with your goals based on the data you receive (MacNeil, 2024).

Consider whether continuing is the right approach.

Should you pivot to a new idea or approach or stop altogether?

3 Letting-Go Strategies

Sometimes, staying on a sinking ship seems easier than getting off (MacNeil, 2024).

However, several strategies can improve our self-awareness and ultimately help us let go of poor decisions or investments (Szpiro, 2020; Reinstein et al., 2017).

• Become future focused
  Often, we become too focused on what we have done in the past. Focusing on the future can help us avoid poor decisions and bad investments.

Ask yourself the following (Szpiro, 2020):

What potential benefits and opportunities could I miss if I continue investing time, money, and resources here?
How does this investment or decision align with my long-term goals?
If I skipped forward a year, what would I tell myself to do?
Am I basing my investment on past decisions or the future benefits and costs?

• Examine the current situation objectively
  Sometimes, we become so close and emotionally involved in what we are doing that we lose sight of reality (Szpiro, 2020).

Are my emotions and feelings clouding my judgment?
Are there any alternative paths or better approaches I could use now?
What advice would I give to a friend?
Who could offer me some helpful and objective advice?

• Learn from the past
  While we don’t want to dwell in the past, it is helpful to consider if there are any lessons that can help us avoid future mistakes. The following reflective questions can be beneficial (Reinstein et al., 2017):

What went wrong in my previous approach? What were the warning signs?
How did my expectations differ from the actual outcome? Why?
What can I do differently in my decision-making process to avoid the same mistakes?

Keeping our future goals in mind, understanding our current situations without emotional bias, and learning from past mistakes can support us in following a path that leads to a better return on our investment of time, energy, and resources (Reinstein et al., 2017).

Useful Resources From PositivePsychology.com

We have many resources to help individuals break free from their cognitive biases.

Our free resources include:

• The “What If?” Bias
  This exercise encourages the individual to adopt a rational perspective and avoid catastrophizing using a series of “what if” questions.
• Understanding Context and Differences
  Context and cultural differences can lead to bias (conscious or unconscious). This therapy-focused worksheet explores what may prevent empathy and understanding from growing and being communicated.
• Becoming Aware of Assumptions
  Even therapists bring biases to conversations. This exercise reflects on what could impact treatment sessions’ content and effectiveness.

More extensive versions of the following tools are available with a subscription to the Positive Psychology Toolkit©, but they are described briefly below:

• Increasing Awareness of Cognitive Distortions
  By becoming aware of our cognitive distortions, we can reduce their influence. Try out the following four steps:
  • Step one – Review the list of cognitive distortions, for example:

All-or-nothing thinking – seeing things in black-and-white categories
Discounting the positive – believing that if a good thing happens, it must not be important or that it does not count
Fortune telling – believing you can predict a future outcome while ignoring other options
Emotional reasoning – believing something to be true because it feels true

• • Step two – List your cognitive distortions, along with examples.
  • Step three – Reflect on each and consider how the bias may be harmful or unhelpful to your decision-making.
• Finding Silver Linings
  We typically dwell more on what has gone wrong in our lives at the cost of looking on the bright side.

Try out the following steps to develop a healthier, more balanced perspective:

• • Step one – List what makes your life worthwhile, enjoyable, and meaningful.
  • Step two – Describe recent difficulties and identify what they cost you.
  • Step three – Reflect on each and consider what you gained from the experiences.

If you’re looking for more science-based ways to help others through CBT, check out this collection of 17 validated positive CBT tools for practitioners. Use them to help others overcome unhelpful thoughts and feelings and develop more positive behaviors.

A Take-Home Message

We don’t always make good decisions.

And we could be better at figuring out when to stop committing more resources to projects, tasks, relationships, and goals whose benefits are outweighed by their costs.

The sunk cost fallacy recognizes this bias. It highlights that this rule of thumb often stems from the degree of commitment we have already made. We’ve invested time, money, and resources into something that no longer offers the expected rewards. It costs more than its potential rewards.

Yet, we are often unwilling to quit or let previous efforts and decisions go to waste, unbalancing our mental account of cost versus value.

The sunk cost fallacy is recognized in large, high-profile financial investments and our daily lives. Haven’t we all continued watching a movie that we aren’t enjoying or prolonged a broken relationship that is going nowhere?

Our past commitments and investments in energy and resources cloud our decision-making. So, we continue when all the warning signals are there.

Fortunately, there are tools and techniques to help us manage this cognitive bias. We can use them personally and with clients to provide early warning when we continue down the wrong path for too long or help us avoid them altogether.

We hope you enjoyed reading this article. For more information, don’t forget to download our three Positive CBT Exercises for free.