Sunk Cost Fallacy: Why We Can't Let Go and How to Stop
Have you ever stayed in a terrible movie because you paid for the ticket? Or continued a failing project because you'd already invested months of work? This is the sunk cost fallacy in action.
🎯 Key Takeaways
- A sunk cost is any past expense (money, time, effort) that cannot be recovered.
- The fallacy is letting those unrecoverable costs influence your future decisions.
- Rational decisions should only consider future costs and benefits.
- The "Fresh Start Question" is your best tool: "Knowing what I know now, would I still make this choice today?"
What Is the Sunk Cost Fallacy?
The sunk cost fallacy is a cognitive bias where people continue investing in something because they've already invested time, money, or effort—even when continuing no longer makes rational sense. The past investment is "sunk" and cannot be retrieved, yet it incorrectly influences our logic.
Rational decision-making means evaluating your options based only on future potential. The money or time is gone regardless of what you do next. The real question is: which path forward offers the best outcome from this point on?
Real-World Example: The Renovated Kitchen That Never Ends
Maria decides to renovate her kitchen with a budget of €15,000. Three months in, the project is behind schedule, the quality is poor, and she's already spent €18,000 with the kitchen only half-finished. Here are her options now:
| Metric | Option A: Continue with Original Contractor | Option B: Switch to a New, Better Contractor |
|---|---|---|
| Already Spent (Sunk Cost) | €18,000 | €18,000 |
| Future Cost to Finish | €8,000 (with high risk) | €10,000 (with low risk) |
| Total Project Cost | €26,000 | €28,000 |
The rational choice compares only the future costs. Option A is cheaper going forward (€8k vs €10k) but carries high risk. The €18,000 is irrelevant. Many people choose A to avoid "wasting" the initial €18,000, but that often leads to worse results.
How to Overcome the Sunk Cost Fallacy
Ask the fresh start question: "If I were starting from zero today, knowing what I know now, would I make this same choice?" This mentally erases the sunk cost and clarifies the best path forward.
Use Calculators for Rational Decisions