The sunk cost fallacy
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 does the sunk cost fallacy work?
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.
Past costs are gone whatever you do — only future costs and benefits should decide the next move.
How do you use the sunk cost fallacy?
- 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.
What does the sunk cost fallacy look like in practice?
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 does the sunk cost fallacy fail?
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.
- Exit itself has future costs — broken contracts, reputational damage, demoralised teams — which a naive 'ignore the past' reading overlooks.
- Accumulated work often embodies learning; abandoning it can discard information that genuinely improves the odds from here.
- In repeated relationships, a record of finishing what you start has strategic value that a single-decision analysis never prices.
The counter-model: Compounding — Sunk-cost logic protects you from bad persistence; compounding rewards good persistence — long games pay only if you stay in through flat stretches.
How do you apply the sunk cost fallacy, step by step?
- When tempted to continue something because of what it already cost, restate the decision as if starting fresh today.
- List only future costs and future benefits of continuing versus stopping.
- Add genuine exit costs — contracts, reputation, morale — to the stopping side.
- Ask: would I start this today at this price? If no, plan the exit.
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.
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Cite this page
ReadGlobe. (2026). The sunk cost fallacy. https://readglobe.com/model/sunk-cost-fallacy/
"The sunk cost fallacy." ReadGlobe, 1 July 2026, readglobe.com/model/sunk-cost-fallacy/.
Primary source: Wikipedia
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.