Glossary
Sunk Cost Fallacy
What is the sunk cost fallacy?
The sunk cost fallacy is letting an unrecoverable past investment determine whether to continue, instead of comparing what the available choices will cost or provide from now on.
You paid for a terrible movie. Staying will not get the ticket money back. The question is whether the rest of the film is the best use of your remaining time.
What the research found
In Arkes and Blumer's study, 33 of 61 respondents chose a more expensive prepaid ski trip despite being told they would enjoy the cheaper trip more. Neither ticket could be refunded. The paper also reported greater theater attendance during the first six months among customers who paid more for season tickets.
One explanation: mental accounting
Richard Thaler’s mental-accounting framework treats purchases as psychological accounts that people evaluate separately. In his 1999 discussion of advance purchases, paying for event tickets opens an account; attending provides the consumption that normally closes it. Missing the event makes the unused payment stand out as a loss.
Applied to the movie example, leaving can feel like admitting that the ticket was wasted, whereas staying feels like getting something for it. That feeling can keep an unrecoverable expense in the decision. This is one proposed explanation of honoring sunk costs, not proof that every person who stays is using the same mental process.
Why it matters
A failing project can absorb more resources because people do not want the past investment to feel wasted. But continuing is not automatically a fallacy: finishing may still offer worthwhile benefits, and stopping can have future costs.
Separate what cannot be recovered from what your next decision can change.