Sunk Cost Fallacy
Edited by Paweł Raja, PhD · Published
Definition
Sunk Cost Fallacy is the tendency to continue an endeavor because of money, time or effort already invested, even when the costs that cannot be recovered should no longer affect the decision.
- Also known as:
- Sunk cost effect, Sunk cost bias, Concorde fallacy
- Category:
- Risk & Loss
- Impact:
- High
- Landmark study:
- Arkes & Blumer (1985)
- Evidence here:
- 5 cited studies
Why it happens: the psychology of sunk cost fallacy
A sunk cost is a cost already incurred that cannot be recovered. Standard decision theory says it should be ignored: only future costs and benefits differ between the options. The sunk cost fallacy is letting past investment push you to continue anyway.
Arkes and Blumer (1985) documented it in a series of studies. In one, many people chose a $100 ski trip over a $50 trip they had been told they would enjoy more, because the $100 trip had cost more. In a field experiment, theatergoers who paid full price for a season subscription attended more often early in the season than those given a discount.
Loss aversion is one explanation: stopping turns a 'paper' loss into a realized one. Others include not wanting to appear wasteful and self-justification. Staw (1976) found that people who were personally responsible for a failing investment committed more additional money to it — escalation of commitment.
The effect appears in high-stakes real decisions too. Ho, Png and Reza (2018) found that Singapore drivers who paid more for the right to own a car drove it more, an effect that faded over time.
Sunk Cost Fallacy examples
In a field experiment at a theater, people who had paid full price for a season ticket attended more plays in the first half of the season than people who had randomly received a discount — the money spent, not the expected enjoyment, drove attendance.
- Everyday life: sitting through a dull movie to the end because you paid for the ticket.
- Everyday life: in Arkes and Blumer's (1985) survey, people imagining they had bought nonrefundable tickets for two ski trips on the same weekend often chose the $100 trip over the $50 trip they expected to enjoy more, because it had cost more.
- Money: holding a losing investment 'until it gets back to what I paid', although the purchase price says nothing about where it will go next.
- Money: Singapore drivers who paid more for the government permit needed to own a car drove it more, at least in the early years of ownership (Ho, Png & Reza, 2018).
- Health: continuing a prepaid course of fitness classes you dislike, rather than switching to exercise you would actually enjoy and keep doing.
- Work: a company keeps pouring money into a failing product because it has already spent millions developing it.
- Government: the British and French governments kept funding Concorde long after its commercial prospects looked poor — the origin of the term 'Concorde fallacy'.
- Career: staying in a degree course, job or relationship mainly because of the years already put in.
How to avoid the sunk cost fallacy
- Ask the fresh-start question: if you were starting today with no history, would you choose to begin this? If not, past spending is not a reason to continue.
- Set stop rules in advance — a budget, a deadline or a milestone — so the decision to quit is made before you are invested.
- Separate the decision-maker from the original champion. Reviews by someone who did not start the project reduce escalation of commitment.
- Reframe quitting as saving future resources rather than wasting past ones.
How to design for it (nudge strategy)
Frame continuation decisions around future costs and benefits only ('Starting today, would we fund this?'), set kill criteria in advance, and separate the people who started a project from those who review it.
Ethical use: design for choices people would endorse on reflection — a nudge, not sludge. Be transparent and keep opting out easy.
Key studies
People let prior spending drive choices, including in a field experiment where full-price theater subscribers attended more than discounted ones.
Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35(1), 124–140. DOI →
People personally responsible for a failing decision invested more in it than those who were not.
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. DOI →
Identified the sunk cost effect as a systematic departure from economic theory.
Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior & Organization, 1(1), 39–60. DOI →
Singapore car owners who paid more for a vehicle permit drove more, with the effect decaying over time.
Ho, T.-H., Png, I. P. L., & Reza, S. (2018). Sunk cost fallacy in driving the world's costliest cars. Management Science, 64(4), 1761–1778. DOI →
Key research
- Prospect Theory: An Analysis of Decision under RiskDaniel Kahneman, Amos Tversky · Econometrica (1979)
Related biases
Sunk Cost Fallacy: frequently asked questions
What is the sunk cost fallacy?
The sunk cost fallacy is continuing something because of what you have already put into it — money, time or effort — even though that investment is gone whatever you do next.
What are some examples of the sunk cost fallacy?
Finishing a meal you dislike because you paid for it; continuing a failing project because of the budget already spent; holding a losing investment to 'get your money back'.
Why is it called the Concorde fallacy?
The British and French governments kept funding the Concorde supersonic airliner long after it was clear it would not be profitable, partly because so much had already been spent. Biologists use the term for animals that appear to make the same error.
What is the difference between sunk cost fallacy and escalation of commitment?
Escalation of commitment is a specific form of the sunk cost fallacy in which people increase their investment in a failing course of action, often because they feel responsible for starting it.
How do you avoid the sunk cost fallacy?
Judge every decision by its future costs and benefits only, set stopping rules in advance, and get an independent view from someone who has not invested in the outcome.
Cite this page
Raja, P. (Ed.). (2026, 8 Oct 2026). Sunk Cost Fallacy. Behavioral Economics Lab. https://www.behavioraleconomicslab.com/biases/sunk-cost-fallacy