What is the sunk cost fallacy?

Definition

A sunk cost is any resource — money, time, or effort — that has already been spent and cannot be recovered, regardless of what happens next. Economic reasoning holds that decisions should depend only on future costs and benefits, so sunk costs should be irrelevant. The fallacy occurs when people allow these unrecoverable investments to drive their choices, continuing a failing project, relationship, or purchase simply because they have already put so much into it. The effect is sometimes called the Concorde fallacy, after the supersonic aircraft whose development continued partly to justify earlier spending.

Rational versus irrational persistence

Not all persistence is fallacious. Continuing can be rational when the expected future benefits still outweigh the future costs, or when honouring a commitment has independent value. The fallacy lies specifically in letting past, irrecoverable costs tip the decision.

Psychologically, the effect is linked to loss aversion — the discomfort of accepting a loss — and to a desire to avoid appearing wasteful or inconsistent. Writing off an investment feels like crystallising a failure, so people prefer to keep going in the hope of redeeming it.

Examples and decision-making

Everyday examples include finishing a film you are not enjoying because you paid for the ticket, or pouring more money into a costly repair because of what you have already spent. In organisations it appears as escalation of commitment, where managers continue funding a failing initiative to avoid admitting the earlier outlay was lost. In research, it can manifest as persisting with an unproductive method or line of enquiry because of the effort already committed, rather than reallocating resources to a more promising approach.

Significance for methods

Recognising sunk costs is central to sound decision-making in research planning, budgeting, and project management. Good practice is to evaluate each decision on its prospective merits — the marginal costs and benefits from this point forward — and to treat past expenditure as fixed. Techniques such as setting predefined stopping rules, seeking outside review, and framing decisions around future outcomes help counter the pull of the fallacy.