The Sunk Cost Fallacy: How It Affects Your Life Decisions

The sunk cost fallacy is a cognitive bias that makes you feel as if you should continue pouring money, time, or effort into a situation since you’ve already “sunk” so much into it already. This perceived sunk cost makes it difficult to walk away from the situation since you don’t want to see your resources wasted.

When falling prey to sunk cost fallacy, “the impact of loss feels worse than the prospect of gain, so we keep making decisions based on past costs instead of future costs and benefits,” explains Yalda Safai, MD, MPH is a psychiatrist in New York City.

According to the National Institutes of Health (NIH), this leads to irrational, emotion-based decision making, causing you to spend additional resources on a dead end instead of walking away from the situation that’s no longer serving you.

Ahead, we’re discussing some of the dangers of falling into this cognitive bias and outlining some common scenarios where sunk cost fallacy can show up in your life.

How the Sunk Cost Fallacy Works

It can be really challenging to walk away from a situation where you’ve already spent any amount of time, money, or energy. What often happens is that you try to rationalize the situation by saying that, since the spent cost can’t be recovered, you might as well stay the course and/or allocate additional resources to try to make things better.

What ends up happening is that you may stay in a stagnant situation that’s unfulfilling and lose additional valuable resources, such as emotional energy, your time (which is finite), or money. Sunk cost fallacy can also sneak up on you by inflating your sense of confidence in a situation.

It’s important to re-frame these sunk costs as just that: money already spent that cannot be recuperated. For clear and rational decision making, the amount you already spent must be viewed as irrelevant to what comes next.

How Sunk Cost Fallacy Shows Up in Our Lives

While the definition of sunk cost fallacy is often associated with actual financial costs—like putting hundreds or thousands of dollars into a car that still won’t run, for example—it can happen in any area of your life. You might see this cognitive bias crop up in your career, personal relationships, education, financial investments, and elsewhere.

Some specific examples might include: 

• Finishing a book or movie you dislike just because you’ve started it
• Gambling more money to try to make up for lost bets
• Investing additional energy and time into a friendship that’s one-sided and proven unlikely to change course
• Remaining in a chosen education track even though you know it’s not what you want to do anymore
• Staying in a romantic relationship where values are misaligned and needs aren’t being met because you’ve been together for so long already
• Sticking to a hobby you dislike because you’ve already spent the money on supplies
• Remaining at a job or on a career track that’s no longer serving you or your future
• Throwing additional money at an investment/product/item in hopes for a better return when you’ve already lost money and things aren’t likely to improve

Even large entities—such as governments, companies, and sports teams—are susceptible to the sunk cost fallacy. For example, they may continue to allocate more resources into projects, products, strategies, or programs that aren’t profitable or successful.

How to Know When To Walk Away

There’s a fine line between knowing when to stay the course and when to walk away.

For example, you might go through a totally normal rough patch in a relationship but this isn’t necessarily grounds for immediately leaving. Or you might try a hobby that you’re not 100% gung-ho about, but could end up loving it once you get past that awkward, “I’m not very good at this” hurdle.

In these moments, it’s important to prioritize rational thought. Dr. Safai says, “The best predictor of the future or future behavior is the past. If until this point the relationships, hobby, friendship, job, etc. has not served you in any positive regard, it likely won't in the future.”

Also consider the following: 

• Poor Outcomes: If you're repeatedly met with an unfulfilling outcome despite best efforts, re-evaluate.
• Opportunity Cost: Where will your dollar/energy/time get the most value? Can you get more “return” on your resources by venturing elsewhere, or staying the course?
• Mental Health: If a situation takes a negative toll on your mental well-being and the future doesn’t look bright, closing the door is best.
• Compromised Confidence: If you’re feeling less and less sure about the situation, this is an indicator that you may need to close the door.

A Word From Verywell

Sunk cost fallacy can be tricky to wrap your head around, and it’s not without nuance. For more clarity in these complex decision-making moments, completely disregard how much you’ve already invested so that it doesn’t hold influence. Then, look at the facts.

Are you satisfied? Have you repeatedly been met with dead ends? Is there still potential for a positive outcome if you continue investing your resources and energy? What are the benefits of walking away and opening a new door? These are the factors that should influence your decision rather than any previously sunk costs.