Sunk cost
Based on Wikipedia: Sunk cost
In 1969, the Concorde supersonic jet was already a commercial disaster. Both the British and French governments knew it. Privately, officials admitted the project should never have been started. The economics simply didn't work—there was no viable market for a plane that burned fuel at such an extravagant rate just to shave a few hours off a transatlantic flight.
And yet they kept funding it.
Year after year, billions more poured into the project. Why? Because billions had already been spent. The logic felt irresistible: we've come this far, we can't stop now. To abandon the Concorde would mean admitting that all that money, all that effort, all those years had been wasted.
This phenomenon became so famous among economists that they named it "the Concorde fallacy." But the Concorde was just one spectacular example of something that happens everywhere, all the time, in boardrooms and living rooms and battlefields. We throw good money after bad. We stay in relationships that aren't working. We finish books we're not enjoying. We continue wars long past the point of reason.
All because of sunk costs.
What Exactly Is a Sunk Cost?
A sunk cost is money, time, effort, or any other resource that has already been spent and cannot be recovered. It's gone. Irretrievable. No matter what you do next, you cannot get it back.
This stands in contrast to prospective costs—future expenses that you can still avoid if you choose differently. If you're thinking about buying movie tickets but haven't purchased them yet, that's a prospective cost. You might decide to stay home instead and spend nothing.
But once you've bought those tickets? That money is sunk. It's as good as gone whether you attend the movie or not.
The distinction matters enormously for making good decisions. According to economic theory, only future costs and benefits should influence your choices. The past is, as they say, water under the bridge. Crying over spilt milk won't unspill it.
The Bygones Principle
Economists have formalized this insight into something called the bygones principle, or sometimes the marginal principle. The idea is elegantly simple: at any moment, the best decision depends only on what happens from this point forward. What you've already invested is irrelevant.
Here's a concrete example. Imagine a company has begun building a new factory. The original projection was that it would cost one hundred million dollars to complete and generate one hundred twenty million dollars in value—a tidy twenty million dollar profit.
But thirty million dollars into construction, the projections change. Now the completed factory will only be worth sixty-five million dollars. Should the company continue?
Many people's instinct is yes. After all, thirty million dollars has already been invested! Abandoning the project would mean losing all of that. But this instinct leads us astray.
The real question is: what happens from this point forward? Completing the factory requires seventy million more dollars. The finished factory will be worth sixty-five million. That's a five million dollar loss on everything done from this moment on. The rational choice is to walk away, even though it feels like "wasting" the original thirty million.
That thirty million is gone regardless. It's sunk. The only question is whether to sink seventy million more.
Now, if the projections fell to seventy-five million instead, the calculation changes. Spending seventy million to get seventy-five million in value means a five million dollar gain going forward. In that case, continuing makes sense—not because of what's already been spent, but because of what's still to be gained.
Why the Principle Makes Sense
The bygones principle emerges from a branch of philosophy called rational choice theory, particularly something known as the expected utility hypothesis. These are fancy names for a straightforward idea about how rational people should make decisions.
One key concept is called cancellation. If some outcome will happen regardless of what you choose, you can ignore it when deciding. It "cancels out" because it affects all your options equally.
Past decisions fit this description perfectly. They've already happened. They'll be part of your history whether you turn left or right at the next fork. Since they're identical across all your future options, they shouldn't influence which option you pick.
Another way to think about this is through what decision theorists call separability. Imagine your life as a branching tree of choices, where each decision point leads to new branches of possibilities. Separability says that when you're standing at one of these decision points, you should only look at the branches still available to you. The branches you didn't take, the ones that are now forever closed off—those are irrelevant. The path that brought you here doesn't matter. Only the paths leading forward do.
This isn't just abstract philosophy. It's the foundation of how economists analyze sequential decisions and strategic interactions. Game theory, for instance, builds on the assumption that rational players evaluate each move based on future consequences, not past investments.
When Ignoring Sunk Costs Is Actually Irrational
But here's where things get interesting. Sometimes what looks like the sunk cost fallacy is actually perfectly rational behavior once you understand the full context.
Consider a manager who continues funding a failing project. From the company's perspective, this might be irrational—they're throwing good money after bad. But from the manager's personal perspective? It might be entirely rational.
If the manager abandons the project, they have to admit they made a mistake. They might lose their reputation for perseverance. They might get blamed for the failure. By continuing, they preserve their image and delay the day of reckoning. The project might even succeed through luck or changed circumstances, vindicating their persistence.
This creates what economists call an incentive problem, which is different from a cognitive error. The manager isn't confused about sunk costs—they're simply optimizing for their own career rather than the company's bottom line.
There's another scenario where honoring sunk costs makes sense: when you have private information that others don't. Perhaps the manager knows something about the project that outside observers don't—reasons why abandonment would be worse than it appears. In that case, persisting isn't a fallacy at all. It's making good use of specialized knowledge.
The Psychology of Throwing Good Money After Bad
Despite what economic theory prescribes, humans routinely let sunk costs influence their decisions. We've all felt it. You're halfway through a terrible meal at an expensive restaurant, and you force yourself to keep eating because you paid so much for it. You sit through a movie you're not enjoying because you bought the ticket. You stay in a job you hate because you've been there for years.
Researchers Bruno Rego, João Arantes, and Cristina Magalhães studied this phenomenon in romantic relationships. They found that people who had invested significant money and effort into a relationship were more likely to stay in it, even when the relationship wasn't working. People who had invested significant time felt compelled to invest even more time. The investment itself created a gravitational pull toward continued investment.
This shows up in high-stakes contexts too. Werner De Bondt and Anil Makhija examined nuclear power plants in the United States during the nineteen seventies and eighties. In the nineteen sixties, the nuclear industry had promised electricity "too cheap to meter." When that promise evaporated and public support collapsed, utility companies faced a choice: abandon expensive nuclear construction projects, or keep building.
Again and again, managers chose to keep building. Public service commissions later found that many utilities had been "mismanaging the nuclear construction projects in ways consistent with throwing good money after bad." The commissions denied these companies even partial recovery of their construction costs as a result.
The pattern repeats in wartime. People argue that a war must continue because otherwise the soldiers who died will have died "in vain." This is deeply felt reasoning, emotionally powerful—but economically it's the sunk cost fallacy. Those soldiers cannot be brought back regardless of whether the war continues. The only question should be whether future fighting will achieve goals worth the future costs.
The Four Psychological Roots
Behavioral economists have identified at least four psychological mechanisms that drive the sunk cost effect.
The first is called framing effects. Human decisions are heavily influenced by how options are presented. The same choice, described as a gain versus described as avoiding a loss, will elicit different responses. When we've invested in something, continuing feels like protecting a gain, while quitting feels like accepting a loss. We're wired to avoid losses more strongly than we seek equivalent gains—a phenomenon called loss aversion.
The second mechanism is overoptimistic probability bias. Once we've invested in something, we unconsciously inflate our estimates of success. We've put skin in the game, and now we see the odds as better than they really are. This isn't deliberate self-deception; it happens automatically, outside of conscious awareness.
Third, personal responsibility matters. The sunk cost effect is strongest when you personally made the decision to invest. If someone else started the failing project and you inherited it, you'll find it much easier to cut your losses. But if you championed it from the beginning? Walking away means admitting you were wrong.
Fourth, there's the desire to avoid appearing wasteful. Abandoning an investment feels like admitting you wasted resources. As one researcher put it, "to stop investing would constitute an admission that the prior money was wasted." Nobody wants to be the person who threw away a hundred million dollars, even if continuing to invest will throw away even more.
These four factors work together to create what economists call non-standard utility functions. In plain language: people aren't just optimizing for money or outcomes. They're also optimizing for how they feel about themselves, how others perceive them, and the psychological comfort of their choices.
Plan Continuation Bias: When Sunk Costs Kill
There's a related phenomenon that's even more dangerous. It's called plan continuation bias, and it has directly caused fatal accidents.
This is the subtle cognitive pressure to continue with a plan even when circumstances have changed and the plan is no longer safe or sensible. Once you've committed to a course of action, your brain resists abandoning it. You've mentally invested in the plan. You've prepared for it. You've told yourself you're going to do it.
In aviation, plan continuation bias is a recognized killer. A two thousand four study by the National Aeronautics and Space Administration—NASA—examined nineteen accidents and found that in nearly half of them, the aircrew had exhibited this bias. They had stuck with their original plan despite warning signs that should have triggered an abort.
A broader analysis of two hundred seventy-nine approach and landing accidents found plan continuation bias in eleven percent of cases, making it the fourth most common causal factor. Another study of seventy-six accidents found it contributed to forty-two percent of cases.
One famous example is the Torrey Canyon oil spill of nineteen sixty-seven. The captain of this massive oil tanker had committed to a particular route between the Scilly Isles and the coast of England. As conditions changed and the passage grew riskier, he had multiple opportunities to take a safer path that would have added delay to his journey.
He refused.
The ship ran aground on Pollard's Rock, breaking apart and spilling over thirty-five million gallons of crude oil into the ocean. It was one of the worst environmental disasters in history, and it happened because a captain couldn't bring himself to abandon his plan.
The Two Factors That Make It Worse
Two psychological characteristics make plan continuation bias especially powerful.
First is overoptimism about success. When you're committed to a plan, you unconsciously overestimate the probability that it will work out. You tell yourself the situation isn't as bad as it looks. You focus on signs that support your decision while downplaying warning signs. This optimism might partly be a defense mechanism—a way to reduce cognitive dissonance, the uncomfortable feeling of holding contradictory beliefs. If you've committed to a plan that's failing, believing it will still work out resolves that discomfort.
Second is personal accountability. When you're responsible for a decision, admitting you were wrong is painful. You don't just have to change course; you have to acknowledge, to yourself and others, that your original judgment was flawed. The more personally accountable you are for the plan, the harder it becomes to abandon it.
These factors help explain why projects so often suffer cost overruns and delays. The combination of optimism, unwillingness to admit failure, groupthink within teams, and aversion to losing sunk costs creates a perfect storm of persistence long past the point where abandonment would be wiser.
Stress Makes Everything Worse
Research by Rui Dijkstra and Yang Hong has shown that emotional state significantly influences susceptibility to the sunk cost fallacy. Anxious people are especially vulnerable. When stressed, they become more motivated to double down on failing investments rather than cutting their losses and trying something new.
This creates a vicious cycle. A failing investment creates stress. The stress makes you more likely to keep investing. Continued investment leads to more losses. More losses create more stress.
Dijkstra and Hong's experiments showed that the sunk cost fallacy has a greater impact on people under high cognitive load—when they're mentally overwhelmed. This matters because high-stakes decisions often happen precisely when people are most stressed and overloaded. The captain of the Torrey Canyon wasn't relaxed and well-rested; he was navigating challenging waters on a tight schedule. The managers of failing nuclear plants weren't casually reviewing spreadsheets; they were under enormous pressure from regulators, shareholders, and public opinion.
The moments when clear thinking matters most are often the moments when it's hardest to achieve.
The Opposite Error: Premature Abandonment
Interestingly, researchers have also documented cases where people make the opposite mistake. Sometimes individuals are irrationally eager to write off earlier investments in order to take up something new.
This might happen when a new opportunity is exciting enough to make the old investment feel boring by comparison. Or when people want psychological closure—to definitively end one chapter before starting another. Or when continuing the original investment would require ongoing effort, and abandoning it offers relief from that burden.
This suggests the sunk cost phenomenon isn't simply about irrationally continuing investments. It's about how we struggle to weigh past investments against future prospects in a consistent, rational way. Sometimes we over-weight the past; sometimes we under-weight it. Getting the balance right is genuinely difficult.
Sunk Costs in Business
The idea of sunk costs appears constantly in business decision-making, often in ways that trip people up.
Brand promotion is a classic sunk cost. Once you've spent money building brand awareness, that money is gone. You can't "demote" a brand name in exchange for cash refunds from your past advertising budget. This seems obvious, but it has implications for pricing decisions. The money you spent building the brand shouldn't affect how you price products going forward—only future costs and competitive dynamics should matter.
Research and development spending creates similar confusion. Pharmaceutical companies often justify high drug prices by pointing to their research and development costs. But this reasoning is economically fallacious. Once the R&D is complete, those costs are sunk. The company should price the drug based on market conditions, competitive alternatives, and regulatory constraints—not based on what they spent developing it.
That doesn't mean R&D spending is irrelevant to business strategy. It absolutely matters when deciding whether to undertake research in the first place. The expected ability to recoup R&D costs should influence investment decisions. But once the research is done and the costs are incurred, they become water under the bridge.
There's also a distinction worth drawing between sunk costs and fixed costs, which people often confuse. A fixed cost is something you pay continuously regardless of production volume—like rent on a factory or a monthly software license. Variable costs scale with production—like raw materials or electricity usage.
Sunk costs are different from both. If a company pays four hundred million dollars to install enterprise software, that cost is sunk. It was a one-time, irretrievable expense. The monthly licensing fees for that software would be fixed costs. The data center electricity usage might be variable. These categories matter for different business decisions, and lumping them together leads to confusion.
How to Actually Make Rational Decisions
If sunk costs are so psychologically powerful, how can we make better decisions despite their pull?
The first step is awareness. Simply knowing about the sunk cost fallacy helps you recognize when you might be falling prey to it. When you catch yourself thinking "but I've already invested so much," you can pause and ask: is this reasoning actually relevant, or am I just rationalizing?
Second, try reframing the decision as if you were starting fresh. Instead of asking "should I continue this project?" ask "if I had this amount of money right now, would I choose to invest it in this project?" If the answer is no, that's telling you something important.
Third, seek outside perspectives. Remember that personal responsibility intensifies the sunk cost effect. Someone who didn't make the original investment decision will find it much easier to evaluate the situation objectively. They don't have ego or reputation on the line.
Fourth, reduce stress if possible before making major decisions. The sunk cost fallacy hits hardest when we're anxious, overloaded, and rushed. Sometimes the best thing you can do is sleep on it, talk to someone you trust, or otherwise create mental space before committing to a course of action.
Finally, distinguish between sunk cost reasoning and legitimate reasons to continue. There might be real future benefits to persistence—reputation effects, learning, or changed probabilities of success. The goal isn't to automatically abandon everything you've started. It's to make sure your reasons for continuing are forward-looking rather than backward-looking.
The Deeper Question
Perhaps there's something to be said for the irrationality of humans in this domain. The sunk cost effect might represent, as economists put it, "non-standard measures of utility." In plain language: maybe people aren't just optimizing for money or even outcomes. Maybe they're optimizing for meaning.
It's not entirely crazy to feel that investments should matter, that persistence has value, that you shouldn't abandon your commitments just because the numbers turn against you. There's a reason we admire people who stick with difficult projects, who don't give up when things get hard, who see things through to the end.
The trick is distinguishing between valuable persistence and foolish stubbornness. Between honoring your commitments and being trapped by them. Between learning from sunk costs and being controlled by them.
Economists have their answer: the past is irrelevant, only the future counts. But life is messier than economics. The Concorde, for all its irrationality, became a symbol of engineering ambition. Those nuclear plants that should have been abandoned helped power homes through their operating years. Even the sunk costs of failed relationships taught us something about ourselves.
Maybe the lesson isn't to completely ignore sunk costs. Maybe it's to see them clearly for what they are—gone and unrecoverable—while still making peace with the fact that they happened. You can acknowledge the past without letting it dictate the future.
After all, the time you spent reading this essay is now a sunk cost. The question is what you do next.