What is the sunk cost fallacy?

The tendency to keep investing in something because of what you’ve already spent, rather than deciding purely on the future costs and benefits from here.

Because money, time, or effort already spent can’t be recovered by any choice you make now — so it’s irrelevant to which option is best going forward.

Ask whether you’d start the commitment today, knowing what you now know. If not, the only thing keeping you in is the sunk cost.

The sunk cost fallacy

Also called throwing good money after bad · Behavioural economics

The sunk cost fallacy is the pull to keep investing in something — money, time, effort — because of what you’ve already put in, rather than what it will return from here. Past costs are gone whatever you do; only future costs and benefits should decide the next move.

How it works

Rational choice compares the future value of continuing against the future value of stopping. Sunk costs belong to neither — they’re already spent. But loss aversion and the wish not to have “wasted” the investment make the past feel like a reason to continue, so we escalate commitment to failing projects.

How to use it

Deciding whether to abandon a project, job, or purchase: ask “knowing what I know now, would I start this today?”
Cutting losses early instead of doubling down to justify earlier spending.
Spotting escalation in others — budgets, wars, and relationships kept alive only by their own history.

Worked example

You’ve paid for a concert ticket, then feel ill on the night. The money is gone either way; the only real question is whether a miserable evening out beats resting at home. Going only “because you paid” is the fallacy — spending a good evening to honour a lost cost.

Where it fails

Not every persistence is the fallacy — sometimes continuing really is best, and “cut your losses” can rationalise quitting too soon. The test is strictly forward-looking: ignore what’s spent, and weigh only what each path gives you from now on.

The deeper point

Its grip is strongest exactly where it hurts most: the more you’ve sunk, the harder it is to walk away — so the fallacy quietly protects your worst decisions from review. The cure is a ritual of forgetting: judge each ongoing commitment as if you were meeting it fresh today.

Frequently asked

What is the sunk cost fallacy?: The tendency to keep investing in something because of what you’ve already spent, rather than deciding purely on the future costs and benefits from here.
Why is it a fallacy?: Because money, time, or effort already spent can’t be recovered by any choice you make now — so it’s irrelevant to which option is best going forward.
How do you avoid it?: Ask whether you’d start the commitment today, knowing what you now know. If not, the only thing keeping you in is the sunk cost.

Opportunity cost Loss aversion Marginal thinking Inversion Wikipedia: Sunk cost

The books behind better thinking

Thinking, Fast and Slow — Daniel Kahneman
The Art of Thinking Clearly — Rolf Dobelli
The Great Mental Models, Volume 1 — Shane Parrish
Poor Charlie’s Almanack — Charlie Munger
Super Thinking — Gabriel Weinberg & Lauren McCann
Seeking Wisdom — Peter Bevelin

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Editorial synthesis © ReadGlobe 2026, drawing on the mental-models tradition (Charlie Munger, Farnam Street) and the primary sources for each model. · Last reviewed 2026-07-01.