Sunk Cost Fallacy: Why We Keep Going and How to Stop

What is the sunk cost fallacy?

The sunk cost fallacy is continuing something because of what you already put into it, rather than because of what it will give you from here. The cost is “sunk”: it is spent and stays spent no matter what you choose next.

The logic error is simple to state and hard to feel. A good decision compares future costs with future benefits. Past costs appear on both sides of that comparison (you lose them if you quit and you lose them if you continue), so they cancel out. Yet most people treat them as a reason to keep going.

You see it in phrases like:

• “We’ve come too far to stop now.”
• “I can’t waste all that training.”
• “I already paid for it, so I’m going to use it.”
• “Three years in, I owe it to myself to see it through.”

This page is about the bias: why your mind clings to past spending. If you want the tool for pricing past costs out of a choice, read the companion mental model, sunk cost, which is the model that fixes this bias.

Where it comes from

The best-known study is Hal Arkes and Catherine Blumer’s 1985 paper “The Psychology of Sunk Cost.” They ran a series of experiments showing that people let prior spending steer later choices.

In one scenario, participants imagined they had bought a ski trip to Michigan and a cheaper ski trip to Wisconsin, then found the two trips fell on the same weekend and neither ticket could be refunded. They were told they would enjoy the Wisconsin trip more. Many still chose Michigan, the trip they had paid more for, even though both costs were already gone.

Arkes and Blumer also ran a field study with a university theater. Season ticket buyers were randomly given either the normal price or a discount. In the first part of the season, people who paid full price attended more performances than those who got a discount. The price they had paid, not the plays, seemed to drive attendance.

Their explanation was a wish to not appear wasteful: abandoning something you paid for feels like admitting the money was thrown away. Later work linked the effect to loss aversion (quitting turns a paper loss into a real one), to self-justification, and to escalation of commitment in organizations, where managers keep backing projects they personally approved.

How to beat the sunk cost fallacy

You cannot switch the feeling off, but you can build a process that routes around it.

1. Ask the fresh-start question. “If I were starting from zero today, knowing what I know now, would I choose this at its remaining cost?” If the answer is no, the past spending is the only thing holding you there.
2. Write the remaining cost and remaining benefit on one line each. Only future money, time and energy count. Anything you have already spent goes in a separate box labeled “gone either way.”
3. Name the opportunity cost. Every hour you keep pouring into the old plan is an hour not spent on the next best option. Make that option concrete with opportunity cost thinking.
4. Set kill criteria in advance. Before you start, write down what would make you stop: a date, a budget ceiling, a metric that must be reached. Deciding while you are calm beats deciding while you are invested.
5. Bring in a fresh pair of eyes. Someone who did not make the original call has nothing to justify. Ask them only about the future: “Given where this is now, would you put more in?”

If quitting feels permanent, check whether it is. Many exits can be undone or paused, and reversible decisions deserve less agonizing than you are giving them.

3 real-world examples

Business

Say a software company has spent 18 months building a feature that early users ignore. The team argues for six more months “to get it right,” mostly because killing it would make the last 18 months look wasted. The right question is whether six more months on this feature beats six months on anything else on the roadmap. Often it does not, and the most valuable thing the first 18 months produced is the evidence that the idea was weak.

Personal life

Say you are two years into a degree you no longer want. You stay because switching would “waste” those two years. But the two years are spent either way. What matters is which path gives you a better next five years, and whether any credits, skills or contacts carry over to the alternative (those are real future benefits, so they count).

Investing

Say you bought a stock at $80 and it now trades at $40. You hold because selling would “lock in” the loss. The market does not know or care what you paid. The only relevant question is whether, with $40 in cash today, you would buy this stock over every other option you have. If not, holding it is a fresh decision to buy it at $40, just a passive one.

Common mistakes

• Treating every past investment as irrelevant. What you spent is gone, but what it built may not be. A half-finished project with working code has a lower remaining cost than starting over, and that is a legitimate reason to continue.
• Confusing persistence with the fallacy. Sticking with something hard is not a bias when the expected future payoff is still worth the future cost. The fallacy is about the reason you continue, not the act of continuing.
• Overcorrecting into quitting everything. Some people learn about sunk costs and start abandoning projects at the first rough patch. Switching has its own costs, and the next option is usually less tested than it looks.
• Ignoring real exit costs. Penalties, broken commitments and damaged trust are future costs. Count them honestly.
• Deciding alone and in the moment. The feeling is strongest right after a setback. Sleep on it or use criteria you wrote earlier.

Sunk cost fallacy vs loss aversion

The two often run together. Quitting a failing project means accepting a loss, and loss aversion makes that acceptance painful, which is part of why sunk costs are so sticky. Status quo bias adds a third push: continuing is the default, and defaults feel safe. You can read more on status quo bias.

The Mentarium take

The sunk cost fallacy is less a math error than a story error. People do not keep going because they misread the numbers; they keep going because quitting rewrites the story of who they were when they started. Nobody wants to be the person who wasted three years.

So the fix is to give the past a different job. Instead of a debt you must repay, treat past spending as tuition: it bought you the information you now have, including the information that this path is not working. Seen that way, quitting is the moment the tuition pays off.

In practice, the sunk cost fallacy shows up on the Mentarium Bias Radar for three kinds of decisions: career, relationships and business. Whenever a decision falls into one of those, run the Stress-test step of The Mentarium Decision Loop with one question aimed straight at it: “Would I start this today?” And because this bias lives in memory and self-justification, the strongest defense is a written record. When you start something, write down why, what success looks like and what would make you stop. A decision journal turns the stopping rule into a promise your past self made while thinking clearly, which is much easier to keep than one you invent in the middle of a setback.