Meaning & Examples of Sunk cost fallacy

Sunk Cost Fallacy

What is the Sunk Cost Fallacy?

The sunk cost fallacy is a cognitive bias that causes individuals to make suboptimal decisions based on an irrelevant past investment. In reality, the past expense or time spent has no bearing on future value and should not be considered when making decisions for the future. This type of reasoning typically occurs under conditions where people have already invested resources into something prior to being provided with additional information.

People often make decisions based on what they have already invested in rather than evaluating them objectively. This is called the sunk cost fallacy – a decision that has already been made should not affect the future outcome of any situation.

Sunk Cost Fallacies Example in Real Life

A sunk cost fallacy is when an organization purposely chooses to continue an activity due to the time and/or money already invested in it. It is a decision-making shortcut, or cognitive bias, which may result from feelings of regret or loss, often at the expense of rational thought. In other words, it occurs when people factor in sunk costs when they make decisions about future action.

Sunk Cost Fallacies Example in Relationship

Sunk Cost Fallacy is the cognitive bias whereby people feel an increased sense of commitment to continue a relationship or an endeavor simply because they have invested a lot of resources in it. Often, people are guided by a false belief that the investment must work out. Hence, they tend to ignore warning signs and red flags. In other words, they tend not to think objectively when making decisions.

We all have made mistakes in life. The mistake that we often make is believing that these mistakes will not affect our future decisions, and if they do not, this means that we should continue doing something wrong.

However, it is important to understand the concept of sunk cost fallacy and how it affects your daily decision-making process.