The Sunk Cost Fallacy: Why We Throw Good Money After Bad
Staying in a bad film because you paid for the ticket. Why money already spent shouldn’t drive the next decision, the Concorde story, and how to decide afresh.
You’ve paid for a cinema ticket. Half an hour in, the film is dreadful and you know it isn’t going to get better. Do you stay?
Most people do. And most economists would say that’s a mistake, though a very understandable one. It even has a name: the sunk cost fallacy.
Try it
Finish it, or stop?
A project has already cost something. Finishing will cost more, and the result is worth something. Move all three.
Stop: finishing costs $50k more and the result is worth $40k. Now move “already spent” as far as you like. It never changes the answer: that money is gone either way.
What a sunk cost is
A sunk cost is money, time or effort you’ve already spent and can’t get back, whatever you decide next. The cinema ticket is paid for whether you stay or leave.
The sunk cost fallacy is letting that spent cost push you towards a choice you wouldn’t otherwise make. You stay in the cinema not because the rest of the film is worth your evening, but because leaving feels like wasting the ticket.
But the ticket is already spent, whether you stay or go. The only real choice is between the next ninety minutes of a bad film and ninety minutes of something else. The ticket money isn’t on either side of the scale. Play with the toy at the top, which asks the same question with a lot more money at stake.
Two ski trips
The best-known experiment on sunk costs comes from the psychologists Hal Arkes and Catherine Blumer, in 1985.
Try it
Two ski trips, one weekend
You’ve bought a $100 ski trip to one resort and later a $50 trip to another, which you know you’ll enjoy more. Then you realise they’re on the same weekend, and neither can be refunded or sold. Which should you go on?
Pick one. You’ll see why straight after.
More than half of the people they asked chose the trip they expected to enjoy less, because it had cost more. Logically, the $150 is gone either way; the only thing left to choose is the better weekend.
Arkes and Blumer also ran a field study with a university theatre. They sold season tickets at random to three groups: some paid full price, some got a small discount, and some got a big one. Over the first half of the season, the people who’d paid full price went to more of the plays. Having paid more, they felt they had to get their money’s worth, even though the price was already paid and the plays were the same for everyone.
Where it shows up
- Projects. “We’ve already spent two years and a million on this system; we can’t stop now.” Maybe continuing is right, but only if the remaining cost is worth what you’ll get, not because of what’s gone.
- Degrees and careers. Staying on a path you’ve come to dislike because of the years already put in.
- Relationships. Staying because of how long you’ve been together, rather than whether the future together looks good.
- Investments. Refusing to sell a share that has fallen because selling would “lock in” the loss, when the only question is whether you’d buy it at today’s price.
- Everyday life. Finishing a meal you don’t want because you paid for it, or a book you’re not enjoying because you’re halfway through.
The Concorde
The supersonic airliner Concorde was developed by the British and French governments from the 1960s. Long before it flew passengers in 1976, it was clear that it would never make back what it had cost. Costs had multiplied many times over, and few airlines wanted to buy it. The project went on, partly because of national prestige and partly because so much had already been spent that stopping seemed unthinkable.
Concorde became a symbol of the sunk cost fallacy, so much so that when the biologists Richard Dawkins and Tamsin Carlisle wrote in 1976 about animals that seem to keep investing in a nest or brood because of past investment, they called it the Concorde fallacy. (Later work suggested that many animals are actually better than humans at ignoring sunk costs, which is not a flattering finding.)
It isn’t unique. Large public projects regularly run years late and billions over budget, and the larger the sum already spent, the harder it becomes to stop. The psychologist Barry Staw studied this in 1976 and called it escalation of commitment: people who were responsible for an earlier decision that went badly tended to put more money into it, not less, as if a bigger bet could redeem the first one.
Try it
Finish it or drop it?
A project has already cost something. Finishing it will cost more, and when it’s done it will be worth some amount. Change all three and watch which one never affects the answer.
Finishing would cost more than it’s worth: you’d come out $-100k from here. Stop, even though $500k has been spent. That money is gone whether you finish or not; carrying on only adds to the loss.
Why we fall for it
We hate losses. Walking away makes the loss feel real and final. Carrying on keeps alive the hope that it will all pay off. Psychologists find that losses weigh more heavily than equivalent gains, and abandoning something turns a vague disappointment into a clear loss.
We don’t want to look wasteful, to others or to ourselves. Abandoning something can feel like admitting a mistake, and the people who championed the project often feel this most.
We want to be consistent. Having committed, changing course can feel like breaking a promise. Consistency is usually a virtue, which is what makes it such an effective trap.
It sounds like a moral rule. Children are taught not to waste food or give up halfway. Those are good habits in most cases, and they follow us into cases where they no longer fit.
These are understandable feelings. They just aren’t good reasons about the future.
How to decide instead
The fix is to make the decision as if you were arriving fresh.
- Ask the forward-looking question. “Knowing what I know now, if I were starting today, would I choose this?” If not, the past spending shouldn’t change your answer.
- Compare the futures, not the pasts. What does each option cost from here, and what does it give you from here?
- Count the opportunity cost. Staying in the bad film costs you the other things you could do with the evening. Continuing a failing project costs you the other projects that money and time could fund.
- Separate the lesson from the decision. It’s worth learning from what went wrong. That’s a different question from what to do next.
- Set stopping rules in advance. Before you start, decide what would make you stop: a budget, a deadline, a test result. It’s much easier to follow a rule you made with a clear head than to make the call when you’re invested.
- Get a fresh pair of eyes. Someone who wasn’t involved in the original decision doesn’t feel the sunk cost, and can ask the forward-looking question without flinching.
When sticking with it is right
Not every decision to continue is a fallacy. Sometimes carrying on is the best choice from here: the remaining work is small and the payoff is real, or you’ve learned that the thing is going better than you feared. A half-built bridge may well be worth finishing, if the cost of finishing is less than the value of a bridge.
There are also real future costs to quitting that look like sunk costs but aren’t. Your reputation for following through, a contract penalty, the skills you’d keep building, the friends on the course: all of those are about the future, and it’s right to count them. The test is simple. If the only reason to continue is what you’ve already spent, it’s the fallacy. If there’s a good reason looking forward, it isn’t.
A note on time
Sunk costs aren’t only money. The most common ones are time and effort: the three years on a novel that isn’t working, the months learning a tool your team has abandoned, the hours already sunk into a video game you no longer enjoy. These feel even harder to walk away from, because time can’t be refunded at all. But the logic is the same. The years are spent whether you continue or not. What you get to decide is how the next ones are used.
The takeaway
The past can’t be changed, so it shouldn’t steer the next step. That doesn’t make what you spent meaningless. It means the best way to honour it is to make the next decision well.
The free economics test has a sunk cost question, and the thinking traps test covers this and other decision traps, including the planning fallacy that so often leads to sunk costs in the first place.
Questions people ask
- What is the sunk cost fallacy?
- Continuing with something because of what you’ve already invested in it, rather than because it’s the best choice from here. The money, time or effort spent can’t be recovered whatever you do, so it shouldn’t tip the decision either way.
- What is an example of the sunk cost fallacy?
- Staying in a cinema watching a film you’re not enjoying because you paid for the ticket, finishing a degree you no longer want because of the years already put in, or pouring more money into a failing project because so much has been spent already.
- Why is it called the Concorde fallacy?
- Because the British and French governments kept funding the Concorde supersonic airliner long after it was clear it would never make back its costs, partly because so much had already been spent and so much national pride was invested. Biologists borrowed the name for the same pattern in animal behaviour.
- Is it always wrong to stick with something?
- No. Carrying on is right when the remaining cost is worth the remaining benefit. What matters is the reason: if you’d choose it again starting today, continue. If the only reason is what’s already gone, that’s the fallacy.
- How do you avoid the sunk cost fallacy?
- Make the decision as if you were arriving fresh. Compare each option’s future costs and benefits only, include what else you could do with the time and money, and separate learning from the mistake from deciding what to do next. Setting stopping rules in advance also helps.
Sources and further reading
- Arkes, H. R. and Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35(1), 124–140.
- Staw, B. M. (1976). Knee-deep in the big muddy: A study of escalating commitment to a chosen course of action. Organizational Behavior and Human Performance, 16(1), 27–44.
- Arkes, H. R. and Ayton, P. (1999). The sunk cost and Concorde effects: Are humans less rational than lower animals? Psychological Bulletin, 125(5), 591–600.
- Dawkins, R. and Carlisle, T. R. (1976). Parental investment, mate desertion and a fallacy. Nature, 262, 131–133.
- Thaler, R. H. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior and Organization, 1(1), 39–60.
