Imagine that you’ve poured time, money, and effort into something. Maybe it’s a failing business, a toxic relationship, or a half-finished project that’s draining your energy, and you know it’s not working, but walking away feels like admitting defeat.

That’s the sunk cost fallacy in action; it tricks us into making bad decisions, keeping us tied to past investments instead of looking at what truly makes sense for the future, but what if letting go was the smartest move you could make?

Let’s talk about the sunk cost fallacy, why we fall for it, and most importantly how to escape its grip, to stop chasing losses and start making smarter decisions.

What is The Sunk Cost Fallacy?

I’m sure we have all been there and maybe you might still be there at this very moment, reading this article; it’s one of those sneaky little mental traps that keeps us stuck in things longer than we should be.

At its core, the sunk cost fallacy is when you keep investing time, energy, or resources into something just because you’ve already put a lot into it even when it’s clear that moving on would be the better choice. Instead of making a fresh decision based on what’s best right now, you let the thought of your past investment weigh you down.

It’s like your brain has this built-in bias that says, “I can’t quit now, I’ve already spent too much on this,” you know one of those many things we tell ourselves, but hey, here is the thing: what’s already spent is gone! It’s in the past! It’s a “sunk cost,” meaning it can’t be recovered; yet, instead of cutting our losses and making a smart choice for the future, we continue to dig in deeper, because we are hoping to justify the time, energy, resources, and attention we’ve already put in, and the deeper we go the darker the hole will get.

I really do have amazing friends, some time ago one of them shared a quote on his WhatsApp status: “The longer you stay on the wrong train, the more expensive it is to get home,” as such is this fallacy; this fallacy messes with our ability to think clearly because it makes us focus on what we don’t want to lose rather than what we still have to gain, and this is precisely where we get stuck, the thought of losing our past investment.

Why Do We Fall for the Sunk Cost Fallacy? (Psychology Behind It)

The sunk cost fallacy is one of those sneaky little mind tricks that makes us stick with things long after we should have walked away; you know, it’s like I said before, it’s when we keep investing in something not because it’s the right choice now, but because we’ve already put so much into it. That “something” could be money, time, effort, or even emotions.

One way to think of it is this way: your brain doesn’t like the idea of waste. Once you’ve invested in something, it feels like quitting means all of that effort was for nothing. So instead of looking at the situation as it is right now, you let past commitments make the decision for you, and again, this is where things start to go wrong.

The truth is, what’s already gone is gone; those costs, whether time, money, or energy are not coming back; what matters NOW is whether continuing is actually worth it, and that again is the very thing with the sunk cost fallacy, it makes us blind to evaluating what matters NOW, if continuing is worth it, I know it might sound like I’m going in circle but please follow me, let’s see this together; the sunk cost fallacy keeps pushing us to chase losses instead of making a fresh, rational choice; it’s like, no, not like, it is exactly being trapped by our own past decisions, even when they no longer serve us.

But once you recognize the sunk cost fallacy, it becomes a lot easier to step back and ask, “If I were starting fresh, would I still choose this?” Because at the end of the day, what is behind you should not decide what is ahead of you, or another way to put it is that we should learn from our past experiences, what to do and what we ought NOT to do.

Real-Life Examples of the Sunk Cost Fallacy

By now I believe we can deduce that the sunk cost fallacy is a cognitive bias that causes us to continue investing in a failing course of action due to the resources already invested and spent. This fallacy can be clearly seen in various aspects of our lives and life in general, from our business to our personal relationships and everyday decisions, so let’s look at that:

Business Examples of the Sunk Cost Fallacy

Failing Projects and Products

Many businesses continue funding projects that are clearly failing because they have already invested significant time and money. A typical example of this is when a company hesitates or refuses to shift their focus despite market trends, eventually leading to their decline.

Stock Market Losses

Investors often hold onto losing stocks longer than they should, hoping to recover their losses rather than cutting their losses early and reinvesting in better opportunities, a good example of this was way back in school, my friends were always telling me to “buy the dip, buy the dip,” Lol, I don’t know if you know this but this is when the value of a coin that was once high is falling, and then there is usually a trend to buy hoping that it will eventually rise way higher in the nearest future, which is is not really a bad move but for some of us, we kept on buying and buying coins upon coins while they kept on falling and falling, and again refusing to stop or at least pause to watch and wait it out we kept buying and now many of those coins are nowhere, either they have been delisted or they are worthless, in after a while we were forced to see that we have lost so much, so much so that many of that losses could have been avoided.

Outdated Business Strategies

This can simply be when companies sometimes stick with outdated marketing strategies or technologies just simply because they have already spent large sums implementing them. For instance, a company may continue using a traditional advertising method even when digital marketing proves more and very very effective.

Relationship Examples of the Sunk Cost Fallacy

Staying in Unhealthy Relationships

Sometimes we often stay in toxic or unfulfilling relationships simply because we have been together for a long time, and the thought of “wasting” years on a relationship discourages us from moving on, even when it is the healthier choice.

Your well-being is influenced by the people you love most, especially those close to you. While we all will experience the joys and pains of loving and living with imperfect people, ultimately, our relationships should bring us joy and not cause us to feel frustrated.

Each human being on this planet deserves to have safe, fulfilling and prosperous relationships. Every human being on this planet has the responsibility to create those relationships. Let’s find out how to recognize the signs of a toxic partnership and start building healthy ones.
Continue Reading: Signs Of A Toxic Relationship And How Fix Or End It

Sticking with a Bad Friendship

Friendships can also suffer from the sunk cost fallacy. You might keep a friend who constantly disrespects or mistreats you simply because you have known him or her for years.

It is no secret that friends play a significant role in determining the direction and quality of our lives. Almost everyone universally agrees upon this statement, and there are plenty of scientific studies to support it. The problem is very few people take action on this knowledge. Fear of judgment can make it easy to stay connected to people we don’t want to be around, which could significantly impact our lives than we realize.
Continue Reading: Be Extra Picky About Your Friends, It’s Not Selfish

Everyday Life Examples of the Sunk Cost Fallacy

Completing a Bad Book or Movie

A very simple example will be that many times we force ourselves to finish books or movies we dislike simply because we have already spent money or time on them, even though quitting would free up time for more enjoyable activities.

Memberships and Subscriptions

Again some people might continue paying for gym memberships, streaming services, or subscriptions they no longer use because they have already spent money on them in the past, and that I don’t understand.

Holding Onto Unused Items

This can mean that we often keep clothes, gadgets, or appliances we never use just because we paid for them, even though selling or donating them would be a better choice, and this I understand, I have seen it play out while I was very much younger.

How to Overcome the Sunk Cost Fallacy

Our overcoming of this bias is essential for making smarter, more productive and more beneficial choices, and so that brings us to steps to overcome the Sunk Cost Fallacy:

Shift Focus to Future Benefits

One of the most effective ways we can overcome the sunk cost fallacy is to focus on our future gains rather than our past losses. Again ask yourself, “If I were starting fresh today, would I still make this decision?” If the answer is no, it may be time to move on.

Recognize Emotional Attachment

We can often struggle to walk away from bad investments, relationships, or projects because of our emotional attachment, but it’s very okay, and more than okay that we acknowledge when our emotions are clouding our judgment and strive to make decisions based on logic and practicality rather than sentiment.

Do you know that there are thousands of decisions we make every day? Average adults face a multitude of decisions every day, from what to eat, what to buy, where to shop, and what to post online, it is often difficult to make the right choice because of this. It’s not the overwhelming number of choices that are scary. It’s the possibility of making the wrong decision.

Do not let your anxiety level fool you into believing that it is the factor that will help you decide about risk. You may not be able to trust your feelings. Your thoughts will not be as logical if you feel more emotion than normal. To balance your emotional reactions, increase your rational thinking about the risk.

Are there any right ways to make better decisions in your life and at work? How important is emotion in decision-making? Are we able to control our emotions in order to achieve the desired results?

Herbert Simon is an American Nobel Laureate scientist who stated, “To have any kind of complete theory about human rationality, one must understand the role that emotion plays in it.”
Continue Reading: Do Not Let Your Emotions Cloud Your Judgement

Set Clear Goals and Criteria

We should establish clear goals and decision-making criteria that can help prevent the sunk cost fallacy from influencing our choices. We should regularly assess whether our current commitments align with our objectives and be willing to make changes when they do not.

Be Willing to Cut Losses

We should learn to accept that losses are part of life and business, and continuing with a bad investment just to “recover” losses often leads to even greater losses, and a strategic exit plan will help us minimize damage and free up resources for better opportunities.

Seek Objective Opinions

This is very very important, sometimes, an outside perspective can help break the cycle of the sunk cost fallacy, so please, please and please talk to a trusted colleague, pastor, mentor, or friend who can provide unbiased advice on whether continuing with a decision is truly beneficial.

What is objective truth? What is subjective truth? My truth! Your truth! Our truth! Truth can only be objective! No! Truth can be objective! Truth can be subjective! For the most part, these were what I was hearing while I spent over 3 hours of my time watching a very interesting argument on YouTube yesterday.

Before you continue reading, what do you think? Is truth objective or subjective?

Well, that’s why you are here, and one truth I can tell you is that you are reading this article at this very moment; obviously. This boils back to the question whether truth is objective or subjective.

According to the Stanford Encyclopedia of Philosophy, Scientific truth is objective and verified through proof and is, or at the very least, ought to be universally recognized. On the contrary, the subjective truth depends on the perspective and opinion of others, which is where things can get difficult.

An example of subjective truth is the statement, “Chocolate ice cream is the best flavor.” This statement reflects a personal opinion or preference and may not necessarily be true for everyone.
Continue Reading: What is Objective Truth: Is Truth Even Objective or Subjective?

Use Data-Driven Information

So instead of relying on our emotions, use measurable data to evaluate the success or failure of a project, investment, or relationship, and if the numbers indicate that something is no longer viable, consider moving on.

Practice Mindfulness and Self-Awareness

If we are not mindful it is very very unlikely that we are making the best of decisions, so becoming more self-aware of our decision-making patterns can help us prevent falling into the sunk cost fallacy. Mindfulness techniques can assist in recognizing cognitive biases and making more rational choices.

Introspection, a process of self-awareness that involves contemplating and analyzing your behaviour and thoughts, is among the main characteristics that distinguish human beings from animals. We are naturally interested in our own lives. We replay our events and experiences in the desire to understand the person we are and what we’re like. How often do we set aside time to think about ourselves?

Introspection can also be defined as reflection, self-contemplation, and self-examination. It is the reflection of one’s own behaviour, thoughts, feelings, and emotions.

We must ask ourselves how often we have the time to reflect. For some of us, we don’t do it often. We only glance in the mirror if we’re forced to. We prefer to look elsewhere to discover the source of our anxiety, our tension, or our issues. It’s much easier to blame someone else or circumstances other than to look at our part in the problem and take responsibility for our choices.
Continue Reading: The Importance Of Introspection: Tips To Increase Self-Awareness

Learn from Past Mistakes

Reflecting on our past experiences where the sunk cost fallacy influenced our choices can help us avoid repeating the same mistake, so recognizing these patterns in our decision-making process allows for future growth and improved judgment.

Conclusion

I can tell you that the overcoming of the sunk cost fallacy requires a shift in mindset, it requires us to focus on the future rather than our past, and by practicing rational decision-making, setting clear goals, and being willing to cut losses, we will definitely be able to make smarter, more productive choices, but first thing first, recognizing this cognitive bias is the first step toward financial, emotional, and professional growth.