Sunk Cost Fallacy

Cognitive BiasDecision MakingBehavioral Economics

The Sunk Cost Fallacy is the tendency to continue investing in a failing endeavor because of previously invested resources.

Introduction

The Sunk Cost Fallacy is the tendency to continue investing in a failing endeavor because of previously invested resources.

Core Concepts

  1. Irrecoverable Costs: Past expenses should not influence future decisions.
  2. Cognitive Commitment: Emotional attachment to prior investments.
  3. Rational Evaluation: Focusing on future benefits instead of past losses.

Applications

  • Personal finance for making rational spending decisions.
  • Business strategy to pivot away from failing projects.

Related Resources

  • Tools: Cost-benefit analysis templates.
  • Book: "Thinking in Bets" by Annie Duke.

Related Topics

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