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Cognitive biases · Decisions and choices

Sunk cost fallacy

We keep going with something because of what we've already put in.

What it is

The sunk cost fallacy is letting past costs that cannot be recovered (money, time or effort already spent) drive a decision about the future. Arkes and Blumer (1985) described it as a greater tendency to continue an endeavor once an investment has been made. A sound decision weighs only the costs and benefits still ahead.

An everyday example

Elena paid for a year of language classes. By month four, she dislikes the teaching style and has found a free conversation group that suits her better. Still, she keeps going to the paid classes every week: “I’ve already paid for them.”

The fee is gone either way. The real question is how she wants to spend her next eight months of evenings, and the answer may well be the free group.

Why it happens

Walking away can feel like admitting a mistake, or like “wasting” what was spent. Arkes and Blumer (1985) linked the effect to a wish not to appear wasteful. Continuing keeps alive the hope that the investment will pay off.

There can also be good reasons to persist, such as new information that the project is close to success, or a reputation for following through. The fallacy is when the past spending itself, rather than future value, is doing the persuading.

How to counter it

  • Ask the fresh-start question. “If I had not spent anything yet, would I choose this now?”
  • List only future costs and benefits. Write them down; leave the past spending off the page.
  • Set exit points in advance. Before starting a project, decide what results would make you stop.
  • Separate the decision from the decision maker. Changing course based on new information is good judgment, not failure.

What the research shows

In a field study, theater-goers who had been randomly given discounted season tickets attended fewer plays in the first half of the season than those who paid full price (Arkes & Blumer, 1985). Having paid more seemed to make people more determined to “get their money’s worth”. The same paper found the effect in hypothetical business scenarios, and it was not reduced among participants who had taken economics courses.

A meta-analysis of 98 effect sizes confirmed that the sunk-cost effect exists, but its size depends on the kind of decision. It differs between choices about using something already paid for and choices about continuing to invest in a project. In usage decisions, the effect weakened as time passed, and older adults were less affected than younger adults (Roth et al., 2015). So sunk costs matter, but not equally in every situation.

Related biases

  • Loss aversion — Losing something tends to feel worse than gaining the same thing feels good.
  • Status quo bias — We tend to stick with the current option or the default, simply because it is already there.
  • Planning fallacy — We expect our own tasks to go faster and smoother than similar tasks usually do.

Sources

  1. Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35(1), 124–140. https://doi.org/10.1016/0749-5978(85)90049-4
  2. Roth, S., Robbert, T., & Straus, L. (2015). On the sunk-cost effect in economic decision-making: A meta-analytic review. Business Research, 8(1), 99–138. https://doi.org/10.1007/s40685-014-0014-8

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