The sunk cost fallacy is ==a cognitive bias that leads people to continue investing resources ([[Time]], money, effort) in a failing endeavor 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:`