Thinking · 3 min read
The Sunk Cost Fallacy: Why We Throw Good Money After Bad
Why we sit through bad films because we paid, stay in failing projects because of what we've put in, and how to make decisions that look forward instead.
By the Cognosc team ·
You paid for a cinema ticket. Half an hour in, the film is terrible. Do you stay to the end because you paid for it?
Most people do. And most economists would say that’s a mistake.
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 wasted, or not, whether you stay or go. The only real choice is between the next ninety minutes watching a bad film or doing something else. The ticket money isn’t on either side of that choice.
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 already been spent. The supersonic airliner Concorde is so often cited as an example that the fallacy is sometimes called the Concorde fallacy.
- 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.
- 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.
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.
We don’t want to look wasteful, to others or to ourselves. Abandoning something can feel like admitting a mistake.
We want to be consistent. Having committed, changing course can feel like breaking a promise.
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.
When sticking with it is right
Not every decision to continue is a fallacy. Sometimes carrying on is the best choice going forward: the remaining work is small and the payoff is real, or you’ve learned that the thing is going better than expected. The fallacy is only when the past cost, rather than the future, is doing the deciding.
It’s also worth remembering that some “sunk” things aren’t fully sunk: a degree half-finished may still have value, and a skill learned in a failed project goes with you.
Test yourself
The sunk cost question is in the free economics test, and the thinking traps test covers nine more ways fast thinking leads us astray.