The Sunk Cost Fallacy occurs when someone continues a behavior or endeavor based on previously invested resources (such as time, money, or effort), even if it’s not the best course of action. This fallacy stems from the emotional investment one makes and the reluctance to “waste” resources, even though these costs are irrecoverable, or “sunk,” and should not logically influence the decision about continuing.
The rational approach would be to consider only the marginal costs and benefits (what you will invest from this point on versus what you will gain) when making future decisions, rather than factoring in what has already been invested.
Imagine you’ve spent $50 on non-refundable tickets to a baseball game, but on the day of the event, you come down with a cold. Even though you’re feeling unwell, you decide to go to the game anyway, thinking that not going would mean “wasting” your $50.
In this situation, the $50 spent on tickets is a sunk cost; you can’t get it back whether you go to the game or not. The decision to go should be based on whether you will enjoy the game given your current condition, not based on the money already spent. By choosing to go to the game because of the sunk cost, you would be falling into the Sunk Cost Fallacy. The more rational approach would be to stay home and take care of yourself if you believe going to the game would make you feel worse.
The Sunk Cost Fallacy can appear in various aspects of life, including business decisions, relationships, and even public policy. Understanding this fallacy can help individuals make more rational, beneficial decisions by focusing on future gains and losses rather than what has already been invested.