Sunk Cost Fallacy

How it works

A sunk cost is any past investment (time, money, effort, emotion) that cannot be recovered regardless of future decisions. The rational approach: ignore sunk costs entirely and evaluate choices based only on future costs and benefits. The human approach: “I’ve already put so much into this, I can’t stop now.”

This fallacy is driven by loss aversion — quitting feels like wasting everything you’ve invested, even when continuing wastes even more. It’s compounded by commitment bias (having publicly committed to something makes it psychologically harder to reverse course) and by narrative — we don’t want to admit that our past decisions were wrong.

The antidote question: “If I were starting from scratch today, with no prior investment, would I choose this path?” If the answer is no, the sunk costs are keeping you trapped.

Case study: How the Concorde flew for decades despite never making money

The Concorde supersonic airliner is so closely associated with the sunk cost fallacy that economists call it “the Concorde fallacy.” The British and French governments jointly funded the aircraft’s development starting in 1962. By the late 1960s, it was clear the plane would never be commercially viable — airlines weren’t ordering it, operating costs were enormous, and sonic booms meant it couldn’t fly supersonic over land.

But billions had already been spent. Neither government wanted to be the one to admit the money was wasted. So they continued funding, continued building, and continued operating the plane at a loss for 27 years. Internal government memos from the period explicitly acknowledge that the project should have been cancelled, but that the political cost of admitting the sunk costs were unrecoverable was too high.

The Concorde was a magnificent engineering achievement and a catastrophic business decision — sustained for decades by the inability to accept that money already spent was gone regardless of future choices.

Real-world examples

Bad movies. You paid for a cinema ticket. Thirty minutes in, the film is terrible. You stay because “I already paid.” But the ticket price is gone whether you stay or leave. The only question: is the next 90 minutes better spent watching a bad movie or doing something else?

Failed projects. A company has invested $5M in a product that isn’t working. The team argues they should invest another $2M because “we’ve already spent $5M.” But the $5M is gone. The question is whether $2M more is likely to produce value exceeding $2M — evaluated as if the $5M had never been spent.

Relationships. “We’ve been together for seven years, I can’t leave now.” Those seven years are a sunk cost. The question is whether the next seven years will be good — regardless of the past.

When to use it

Check for sunk cost thinking whenever you notice justifications that reference past investment (“we’ve already…,” “after all the time I’ve…,” “it would be a waste to…”). These are red flags that sunk costs are driving the decision. Apply the “clean slate” test: remove the history and evaluate the future on its own merits.

Common mistakes

The main mistake is treating all persistence as sunk cost fallacy. Sometimes continuing is the right choice — the project is genuinely close to paying off, the relationship is going through a rough patch but the fundamentals are strong. The sunk cost fallacy applies when the reason for continuing is “because I’ve already invested” rather than “because the future outlook is positive.”

Try it now

Identify one commitment in your life that you’re continuing primarily because of what you’ve already invested. Apply the clean slate test: “If I had none of my current investment in this, would I start it today?” If not, what would it take to walk away?

Related models

These models complement Sunk Cost Fallacy — they address similar situations from different angles.