Imagine the following situation: you’re watching a movie and after 30 minutes you realize it’s not what you expected. But instead of finding another movie, you convince yourself to continue while thinking “I’ve already invested half an hour and the whole movie is just an hour and a half. If I quit now, I’ll have waisted my time so I’ll better stick it out till the end”. Or imagine that you’ve bought a concert ticket a few weeks ago for 50 dollar/euro. You’re super excited to go: all of your friends will be there as well and the band playing is one of your favorites. But on the day of the concert you feel a bit sick – and it’s raining outside. You know that traffic will be worse because of the rain and that you risk getting sicker by going to the concert. Although the current drawbacks seem to outweigh the benefits, you’re still choosing to go to the concert.
This is what experts refer to as the sunk cost fallacy: a psychological trap that causes us to stick with a plan even if it no longer serves us and giving up is clearly a better idea (and also more beneficial for us). But because we’ve already invested our time, effort, emotional energy and/or money we feel that we’ve already invested too much to quit so we make the irrational decision to continue. But the sunk cost fallacy doesn’t just play a role in simple everyday life decisions such as watching a movie till the end even if it’s boring: it can also have an impact on our major life decisions. For example, you continue to study something that doesn't interest you simply because you already paid a high amount in tuition fees or because you’ve put in a lot of effort to pass your first year. Or you stay in a relationship even though you’re unhappy because of all the years you’ve spent together. Investing additional energy and time into a friendship that’s one-sided and proven unlikely to change course or remaining in a job that isn’t satisfying because of all the months of training you had to undergo is another example of how the sunk cost fallacy has an impact on your life decisions.
In today’s blogpost I want to tell you a bit more about this psychological trap, why it’s a problem, the reason it happens and how you can overcome and avoid it so definitely keep on reading if you want to find out more!
What is a sunk cost?
In economic terms, a sunk cost refers to money that has already been spent and can’t be recovered. But generally speaking, sunk costs can be anything that you’ve invested and can’t get back such as time, effort and energy, money, mental strain, emotional energy etc.
Why is the sunk cost fallacy a problem?
The sunk cost fallacy leads you to believe that past investments (the sunk costs) justify further commitment and investment. But sunk costs shouldn’t play a role in our future actions because we can never get back the money, time or energy we’ve invested – regardless of the outcome. For example, the 50 dollar/euro we spent on that concert ticket wouldn’t be recovered whether or not we attended the concert. Therefore it shouldn’t be a factor in our current decision-making. And we also know this ourselves if we look at it from a rational point of view. Unfortunately the sunk cost fallacy and rational decision-making aren’t the best of friends: the sunk cost fallacy tricks us into remaining fixated on our past investments and letting them guide our decisions instead of rationally considering the present and future costs and benefits.
But the sunk cost fallacy not only has an impact on small day-to-day decisions like attending a concert. It also impacts bigger decisions that have long-term effects and it affects many different areas of our lives:
Personal relationships: imagine you're with a long-term partner who no longer makes you happy but you hesitate to end things because of the time and emotional energy you've already invested into the relationship. Rather than focusing on the potential for a healthier and more fulfilling future you might find yourself clinging to the past, fearing that leaving your partner would mean all your previous efforts were wasted.
Career choices: many of us find ourselves stuck in a job or career path that no longer aligns with our goals or interests but we hesitate to make a change because of the time, effort, money or education we’ve already put into it. However, continuing down a career path that doesn't fulfill you simply because of past investments can lead to long-term dissatisfaction.
Why does the sunk cost fallacy happens?
Like I’ve mentioned before, the sunk cost fallacy happens because we’re not purely rational decision-makers: we’re often influenced by our emotions which in turn tie us to our prior commitments – even in the face of evidence that this isn’t in our best interests.
Other factors that can help explain why the sunk cost fallacy happens, are:
Commitment bias: when we have previously invested in a choice, we will likely feel guilty or regretful if we do not follow through so we continue to support out past decisions despite new evidence suggesting that this isn’t the best course of action for us.
Loss aversion: the impact of losses feels much worse to us than the impact of gains so we’re more likely to try to avoid losses than seek out gains. And the more time, money and/or energy you spend on something, the more loss you’ll feel when walking away.
Framing bias: if we don’t follow through on a decision, the narrative is one of failure, even if the subsequent choice not to continue is actually in our best interest. Even if costs are higher when we decide to follow through on a decision (such as going to the concert despite the rain and sickness) we can still frame the narrative as an overall success. Otherwise, the story would be that we wasted 50 dollar/euro, not that we made an intelligent decision for our health and well-being.
The status quo bias: our preference to keep things the way they are to avoid potential losses.
Fear of wasting: stopping would mean admitting that whatever resources we invested up until then have been wasted – and wastefulness isn’t a desirable quality.
Optimism bias: we overestimate the chances that our efforts will bear fruit in the end which causes us to ignore any red flags. As a result we keep pouring money, time or energy in projects because we are convinced that it will all pay of eventually.
Personal responsibility: the sunk cost fallacy affects us most when we feel responsible for a decision and the sunk costs that accompany it – which causes us to cling to the project, decision or course of action for which we feel personally responsible.
How to overcome sunk cost fallacy
Overcoming the sunk cost fallacy can be challenging, but the following strategies can help you:
Pay attention to your reasoning: are you prioritizing future costs and benefits or are you held hostage to your prior investment or commitment – even if it no longer serves you? Do you factor new data or evidence into your decision to continue or abandon a project?
Set clear and well-defined goals from the very beginning: when you have a clear vision of what you want to achieve, it becomes easier to evaluate whether continuing with a current course of action is helping you move toward that goal. By focusing on your objectives rather than past investments, you can make decisions that are more aligned with your long-term success.
Consider the “opportunity cost”: if you continue investing in a project or a relationship, what are you missing out on? Is there another path that could bring you more benefit or fulfillment?
Avoid the trap of emotional investment: when you feel emotionally invested in a project, you may lose sight of what is really going on. That’s when the sunk cost fallacy kicks in and sends you down the wrong path. Seeking advice from people who are not emotionally involved can be an eye-opener and help you make an informed decision.
Practicing slowing down your thinking is also an important step in making good decisions. So next time you find yourself confronted with a sunk cost decision: take a moment to step back and breathe slowly in and out... Watch your breath go in and out en let go of judgment... now consider the following questions:
If you were deciding again to make that purchase or get into that relationship, would you make the same decision? Why not?
If you lost that particular item, would you go out and buy the same one again? Why not?
If you skipped forward a year: what would you tell yourself to do?
Are your emotions and feelings clouding your judgement?
Are you sacrificing other opportunities because you’re stuck with the sunk cost? For example, are you giving up the possibility of other relationships or work or studies by sticking with something that is leading nowhere? What is the opportunity cost of your commitment to a past decision?
Could it be that the benefits of your choice decreased over time while the costs increased? If so, has the tradeoff (costs-benefits) changed?
Are you trying to prove that you are right, even if it keeps you committed to the wrong decision? Is it more important to be right than to be happy?
If you were observing someone else in the same predicament, would you recommend that they stay with their sunk costs or get out?
Is there still potential for a positive outcome if you continue investing your resources and energy?
What are the benefits of walking away and opening a new door?
Have you given up on sunk costs in the past? Are you glad that you got out while you could? Did anything positive follow from giving up?
Some final words on sunk cost fallacy
Smart people often get stuck with poor decisions that they keep holding onto – hoping that they will prove worthwhile in the long term. Mind you, I am definitely not suggesting that you whimsically abandon your marriage, career or job (or even certain items of clothing that you never wear) but taking a few minutes to examine your commitment to a past decision that seems no longer rewarding might help you make a better decision now. And please keep in mind that good decisions should point to future benefits: you shouldn’t be overly concerned in justifying the past when you can benefit more by moving forward.
©HolisticHappiness2025
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