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Sunk Costs Fallacy

Updated Feb 27, 2023

The Sunk Costs Fallacy: Overcoming the Trap of Past Investments

Have you ever found yourself continuing with a project or investment, even when it no longer makes sense, simply because you've already invested time, money, or effort into it? If so, you may have fallen prey to the sunk costs fallacy. In this article, we will explore what the sunk costs fallacy is, why it can be detrimental, and how you can overcome it to make better decisions.

Understanding the Sunk Costs Fallacy

The sunk costs fallacy refers to the irrational tendency of individuals to continue pursuing an endeavor or investment solely based on the resources they have already committed, even when the expected outcome is no longer favorable. In other words, when we consider the time, money, or effort we have already invested as a reason to persist, we fall into this cognitive trap.

Why the Sunk Costs Fallacy is Detrimental

The sunk costs fallacy can have significant negative impacts on our decision-making process. Here are a few reasons why it is detrimental:

1. Misallocation of Resources

By continuing with a project or investment that no longer holds promise, we waste valuable resources that could have been allocated more effectively elsewhere. This can result in missed opportunities and hinder overall progress.

2. Emotional Attachment

The more we invest in something, the harder it becomes to detach ourselves emotionally. This emotional attachment can cloud our judgment and prevent us from making objective decisions based on current circumstances.

3. Escalation of Commitment

The sunk costs fallacy often leads to an escalation of commitment, where individuals double down on their investments in an attempt to justify their past decisions. This can lead to further losses and an even greater waste of resources.

Overcoming the Sunk Costs Fallacy

Recognizing and overcoming the sunk costs fallacy is crucial for making rational decisions. Here are some strategies to help you avoid falling into this cognitive trap:

1. Evaluate the Current Situation

Take a step back and objectively assess the current state of the project or investment. Consider factors such as market conditions, feasibility, and potential returns. Base your decision on what makes sense moving forward, rather than what has already been invested.

2. Separate Past Investments from Future Outcomes

Understand that past investments are just that – in the past. They should not influence your decisions about the future. Focus on the potential returns and costs moving forward, regardless of what has already been invested.

3. Seek External Perspectives

Consulting with others who are not emotionally invested in the project can provide valuable insights and help you gain a fresh perspective. Their objective input can help you make more informed decisions.

4. Set Clear Decision-Making Criteria

Establish clear criteria for decision-making before starting a project or investment. This will help you avoid being swayed by sunk costs and ensure that you base your choices on predetermined factors rather than past investments.

5. Learn from Mistakes

Accept that mistakes happen and view them as learning opportunities. Reflecting on past decisions and understanding the sunk costs fallacy can help you avoid repeating the same mistakes in the future.


The sunk costs fallacy is a cognitive trap that can hinder our decision-making process and lead to misallocation of resources. By recognizing this fallacy and implementing strategies to overcome it, we can make more rational and effective decisions. Remember, the past should not dictate the future, and it's never too late to break free from the sunk costs fallacy and pursue more fruitful endeavors.

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