The sunk cost fallacy is a cognitive bias that leads people to continue investing resources (time, money, effort) in a failing endeavour or course of action simply because they have invested resources in it previously, even when it's no longer rational to do so. In essence, it's the tendency to throw "[[Value|good]] money after [[Excessive|bad]]".  Here's a more detailed explanation: What it is: - The sunk cost fallacy occurs when individuals continue to invest in a project or activity that has already been a financial loss due to past investments.  - Sunk costs are costs that have already been incurred and cannot be recovered. - The fallacy is the decision to continue investing despite the negative outcome.  Examples: - A business owner continues to invest in a product that's not selling well, even though it's clear the market is not receptive to it.  - An individual continues to attend an event or watch a movie they don't enjoy, solely because they paid for it.  - A couple continues a relationship despite it being unhappy, just because they've been together for a long time and have built a life together.  - A government continues funding a project that's over budget and behind schedule, simply because they've already invested a large sum of money in it.  Why it happens: - **[[Cognitive Dissonance]]:** The sunk cost fallacy can be an attempt to reduce [[Cognitive Dissonance]] by justifying past decisions.  - **Loss aversion:** Humans tend to be more motivated to avoid losses than to obtain gains, so they may be reluctant to "give up" on a project where they've already invested.  - **Framing effect:** Past investments can be framed as a "loss" if the project is abandoned, leading people to try to recoup that perceived loss.  Consequences: - The sunk cost fallacy can lead to further financial losses, wasted time and effort, and poor decision-making.  - It can also prevent individuals from recognizing opportunities to pursue more successful or beneficial ventures.  How to avoid it: - **Focus on the future:** When faced with a decision, consider the potential future costs and benefits, rather than the sunk costs.  - **Reset the evaluation:** Take a fresh look at the situation, ignoring the past investments.  - **Recognize the opportunity cost:** Consider what you could gain by abandoning the project and investing in something else.  - **Be realistic:** Acknowledge that past investments are sunk and cannot be recovered.  - **Consult with others:** Get input from trusted individuals to gain perspective on the situation. `Concepts:` `Knowledge Base:`