# Sunk Cost Fallacy: Definition, Examples, How to Avoid > Learn what the sunk cost fallacy is, why leaders cling to failing projects, and how to cut losses with goals, KPIs, decision matrices, and regular reviews. Source: https://asana.com/resources/sunk-cost-fallacy ## Sunk cost fallacy: Definition, examples, how to avoid #### Summary The sunk cost fallacy is our tendency to continue with something we've invested in, even when the costs outweigh the benefits. Learn how this cognitive bias affects workplace decisions and discover strategies to make better, data-driven choices for your team.In January 1976, the supersonic Concorde jet went wheels-up for its first commercial flight after an investment of [$2.8 billion](https://apnews.com/article/fa1e281d544267a8afe77afceaf3f03f) from the British and French governments. But even when it became clear that the plane wasn't profitable, investors continued to pour money into the failing project for another 27 years. This incident gave birth to the term "Concorde fallacy," which describes how people continue with failing endeavors because they've already invested so much. But more commonly, the Concorde fallacy is called by another name: the sunk cost fallacy. In this article, we'll explain what the sunk cost fallacy is, explore the psychology behind it, and share practical strategies to help you and your team make better decisions. ## What is the sunk cost fallacy? The sunk cost fallacy is a cognitive bias that leads us to continue investing in something because of what we've already invested, even when the current costs outweigh the benefits. It affects decisions big and small: from watching a boring movie you've paid for to refusing to abandon a failing business investment. In common terms, it's often called "throwing good money after bad." Whenever we fall prey to the sunk cost fallacy, we make irrational decisions that are against our best interests. Understanding how this bias works helps us make good decisions based on logic rather than digging ourselves into a deeper hole. ### What is a sunk cost? In economics, a "[sunk cost](https://en.wikipedia.org/wiki/Sunk_cost)" is an expense that's already been incurred and can't be recovered. In a logical world, sunk costs shouldn't influence future decisions because they can't be reversed. Common examples of sunk costs include: - **Money:** Funds you've invested in a business project - **Time:** Hours spent on a task or years in a relationship - **Effort:** Energy devoted to learning a skill or building something ## Sunk cost fallacy examples A sunk cost is anything you've invested that can't be recovered. Here are some sunk cost examples to help you identify situations where you may be influenced by the sunk cost fallacy. **Sunk costs can include:** - Opportunity costs, like the time you've invested that you could have spent on something more productive - Effort, like tasks that are particularly challenging - Mental strain, like worry, you've experienced - Facilities and overhead - Materials and equipment - Investments, like purchasing a business - Annual subscriptions - Non-refundable business costs, like legal fees or advertising costs #### 適用於敏捷企業的決策工具 閱讀這份電子書，學習如何培養員工制定更優秀決策的能力，使您的企業能夠比競爭對手更有效地調整、適應和應對挑戰。 - [取得深入解析](https://asana.com/resources/decision-making-guide-ebook) - [取得深入解析](https://asana.com/resources/decision-making-guide-ebook) ## History of the sunk cost fallacy The sunk cost fallacy is a type of [cognitive bias](https://en.wikipedia.org/wiki/Cognitive_bias), a thinking error that makes us misinterpret information and affects our decisions. Psychologists Amos Tversky and Daniel Kahneman [first coined](https://www.sciencedirect.com/science/article/abs/pii/0010028572900163) the term "cognitive bias" in 1972. In 2002, Kahneman [won the Nobel Prize](https://www.apa.org/monitor/dec02/nobel.html#:~:text=In%20October%2C%20Princeton%20University%20psychologist,and%20decision%2Dmaking%20under%20uncertainty.) for his work on cognitive biases in business decision-making. Over the years, behavioral scientists and economists have tried to pinpoint why the sunk cost fallacy happens: - **Richard Thaler** [first introduced](https://linkinghub.elsevier.com/retrieve/pii/0167268180900517) the sunk cost fallacy, concluding that people tend to use a good or service more when they've invested money in it. - **Hal Arkes and Catherine Blumer** expanded on Thaler's work in the journal "[Organizational Behavior and Human Decision Processes](https://www.researchgate.net/publication/4812596_The_psychology_of_sunk_cost)," conducting experiments that illustrated sunk cost psychology in action. For example, one questionnaire study asked participants to imagine they had accidentally booked two ski trips in one weekend: one $100 trip to Michigan and another $50 trip to Wisconsin. Even though researchers told participants they'd enjoy the Wisconsin trip more, the majority still chose the Michigan trip. Participants selected the option with a greater initial investment, even though they wouldn't enjoy it as much. ## The psychology behind the sunk cost fallacy Researchers in behavioral economics have identified at least five psychological factors that feed into the sunk cost effect: **Psychological factor** **How it contributes to the sunk cost fallacy** Loss aversion We fear losses more than we value gains, so we stick with poor investments to avoid feeling bad The framing effect We frame following through as "success" and quitting as "failure," even when quitting is logical Unrealistic optimism We overestimate our chances of success, especially after investing money Personal responsibility We're more likely to continue with decisions we personally made Fear of appearing wasteful We don't want others (or ourselves) to see us as wasteful ### 1. Loss aversion [Loss aversion](https://en.wikipedia.org/wiki/Loss_aversion) is the tendency to avoid losses because losing something feels more psychologically powerful than gaining the same thing. For example, winning $100 feels good, but losing $100 feels horrible. With the sunk cost fallacy, loss aversion makes us stick with poor investments because we don't want to feel bad about losing. ### 2. The framing effect [The framing effect](https://en.wikipedia.org/wiki/Framing_effect_(psychology)) happens when people pick options based on whether they're framed in a positive or negative light. When we follow through on a decision, we can frame it as success. When we don't follow through, we often create a narrative of failure, even if cutting our losses was the logical choice. For example, imagine you've decided to create a blog campaign. Midway through, you realize the blogs aren't getting traffic, and you'd be better off investing in paid advertising. But in your mind, that would mean your blog campaign was a failure, so you follow through even though your money would be better spent elsewhere. ### 3. Unrealistic optimism [Unrealistic optimism](https://en.wikipedia.org/wiki/Optimism_bias) occurs when people believe they're less likely to experience negative events than others. With the sunk cost fallacy, we overestimate our chances of winning and underestimate our chances of losing, especially when we've invested money. For example, if you funnel thousands of dollars into a new business investment, you're more likely to believe it will pan out regardless of actual evidence. ### 4. A sense of personal responsibility When you feel responsible for previous expenditures, you're [more likely](https://www.researchgate.net/publication/247716666_Escalation_The_Determinants_of_Commitment_to_a_Chosen_Course_of_Action) to fall prey to the sunk cost fallacy. It's relatively easy to change a decision made by someone else, but much harder to discontinue a project you've personally invested in. This makes the sunk cost fallacy most problematic for project creators and decision makers with a vested interest in success. ### 5. A desire not appear wasteful Decision-makers may continue with poor investments because they feel bad about wasting money. For example, imagine you've bought a ticket to a movie, but 30 minutes in, you absolutely hate it. You stay for two reasons: you don't want others to think you're wasting money, and you personally feel bad about wasting money. The same concept applies when you keep using a software tool you've purchased, even though it's not working for your team. You don't want to waste your investment, so you stick it out. ## How the sunk cost fallacy affects your work The sunk cost fallacy doesn't just affect personal decisions. It can have a significant impact on your [team and organization](/resources/group-decision-making), showing up in project management, resource allocation, and strategic planning. Common workplace examples include: - **Project management:** Teams continue investing in underperforming projects because they've already spent months developing them - **Software decisions:** Leaders stick with outdated tools because of the time spent training employees, even when better options exist - **Strategic planning:** Organizations keep funding initiatives that no longer align with goals because of resources already committed The consequences can be costly. When teams fall prey to the sunk cost fallacy, they waste time, budget, and energy that could be directed toward more impactful work. Recognizing when this bias is influencing workplace decisions is the first step toward making better choices for your team. ## Is the sunk cost fallacy really so bad? In short, yes. When we let the sunk cost fallacy influence our decisions, we often make bad choices that hurt us. Instead of using logic, we fall prey to a vicious cycle that escalates our commitments. We continue to invest time, money, and energy into something, even if it's not in our best interest. The more we invest, the more committed we are, and the more resources we funnel into that initial bad decision. ## How to avoid the sunk cost fallacy Luckily, the sunk cost fallacy isn't a done deal. With these strategies, you can make [rational decisions based on logic](/resources/critical-thinking-skills) instead of cognitive bias. ### 1. Be aware Just being aware of the sunk cost fallacy is a great first step to avoid its pull. When you understand how this bias works and the psychological factors that feed into it, you can check for cognitive biases each time you make a decision. To do this, ask yourself the following questions: - What am I afraid of losing? How is that fear holding me back? - How have I defined failure and success for this situation? Do those definitions make sense? - What is the actual probability that my endeavor will succeed? - What would I do if someone else had decided to invest? What advice would I give to a friend in my situation? - Am I afraid of appearing wasteful, either to myself or others? Is that fear rational? ### 2. Make data-based decisions The sunk cost fallacy defies logic. The best way to combat this thinking trap is to bring logic back into the equation by collecting data to inform your [decision-making process](/resources/decision-making-process). Here are a few ways to ground your decisions in real-life data: #### Set goals before you invest Before you invest resources in a new project, identify the specific success metrics you want to achieve. Setting measurable goals up front gives you a clear target and a way to measure success. If your project isn't meeting its goals, you have a data-backed reason to adjust your approach or move on. There are a couple of different ways to set effective goals, including [Objectives and Key Results (OKRs)](/resources/okr-meaning) and [SMART goals](/resources/smart-goals). Both methods focus on setting specific, measurable targets so you have a concrete way to gauge success. For example, imagine you set a goal to increase product signups by 30% through paid ads over six months. If signups only increased by 10% and ad spend exceeded revenue, your concrete goal provides data-backed evidence to pivot. Instead of falling for the sunk cost fallacy, you can confidently try a new approach. #### Track key performance indicators (KPIs) A [key performance indicator](/resources/key-performance-indicator-kpi) is a quantitative metric you can use to track how a project, team, or organization is performing relative to your goals. Setting KPIs before you begin gives you data in hand when you're faced with a decision to end or continue your project. Examples of KPIs to track include: - Customer churn rate - Customer satisfaction scores - Total number of paying customers - Revenue per customer - [閱讀：資料驅動的決策：新手指南](/resources/data-driven-decision-making) #### Create a decision matrix A [decision matrix](/resources/decision-matrix-examples) helps you select the best option when comparing multiple choices with several influencing factors. Instead of defaulting to what you've already invested in, you objectively weigh [costs and benefits](/resources/cost-benefit-analysis). For example, when evaluating HR management tools: **Option** **Cost (weighted 3x)** **Customer service (weighted 2x)** **Reviews (weighted 1x)** **Total score** Current tool 6 4 3 13 Alternative A 9 6 4 19 Alternative B 6 8 5 19 This approach helps you make [data-driven decisions](/resources/decision-tree-analysis) rather than sticking with your current tool simply because you've already invested in it. ### 3. Set a cadence to review your strategy The sunk cost fallacy can be tricky to detect, especially if you don't regularly check your project's performance. A failing project can languish for months if you never consider whether your approach still works. Setting up [regular progress reports](/resources/how-project-status-reports) and check-ins helps you stay on track and reevaluate your project's success. If you've set goals and KPIs, you already have a way to determine whether your current strategy is working. Depending on your [project timeline](/resources/create-project-management-timeline-template), check in at the end of each week, month, or quarter. Using a [project management tool](/uses/project-management) can help streamline this process. When you create goals in Asana, you can set a due date and create automated reminders to update your progress. Plus, you can easily share updates with stakeholders so everyone stays informed. ## Make better decisions for your team Just because you've sunk costs into a project doesn't mean you have to go down with the ship. With these strategies, you can let go of the past and make decisions based on what's best for you and your team. The sunk cost fallacy makes you your own worst enemy, but with self-awareness, you can be the key to your team's success instead. Ready to make data-driven decisions and track your team's progress more effectively? [Get started](/create-account) with Asana to set goals, review progress, and keep your projects on track. ## Frequently asked questions about the sunk cost fallacy #### What is sunk cost fallacy in relationships? The sunk cost fallacy in relationships occurs when someone stays in an unfulfilling relationship because of the time, energy, or emotions they've already invested, rather than evaluating whether it serves them now. #### Is sunk cost fallacy a cognitive bias? Yes, the sunk cost fallacy is a type of cognitive bias. [Cognitive biases](/resources/unconscious-bias-examples) are systematic thinking errors that affect our judgment and decision-making. The sunk cost fallacy specifically causes us to weigh past investments too heavily when making decisions about the future. #### What is the opposite of the sunk cost fallacy? The opposite is what economists call the "bygones principle": making decisions based solely on future costs and benefits, not past investments. - [生產力](/resources/productivity) - [使用番茄工作法技巧提高專注力和生產力](/zh-tw/resources/pomodoro-technique) 生產力 #### 內容撰稿人 您是否曾因待辦事項清單而感到不勝負荷，並擔心無法按時完成所有任務？透過運用番茄工作法等時間管理策略，您可以最大化生產力，並有效掌控專案進度。 番茄工作法透過專注工作的循環與頻繁的短暫休息來進行。其概念是透過在短時間內不受打擾地工作，您可以同時提升生產力，並減少精神疲勞。若您與多位團隊成員共同負責多個專案，則可以使用這項技術將任務進行時間分段，從而減輕工作量 ... - [在工作中運用心流狀態力量的 6 個提示](/zh-tw/resources/flow-state-work) 生產力 #### 作者 工作時最棒的感受之一就是處於以下這種境界：感覺工作不費吹灰之力、外界事物彷彿消失不見，而且甚至忘卻了時間的流逝。 此境界有一個專門的名稱：心流狀態。當您處於心流狀態時，生產力和創意會大躍升，且完成出色的工作彷彿一點都不費吹灰之力。很幸運地，達成心流狀態並不如聽起來那麼困難。在本文中，我們會揭開心流的神秘面紗，幫助您在每天的工作中，進入心流。以下說明如何辦到 ... - [資源管理入門指南](/zh-tw/resources/resource-management-plan) 專案管理 生產力 #### 作者 大多數負責人面臨的挑戰，就是要確保團隊既不會感到過勞，也不應賦閒。在這個各種組織快速變動且大部分時候都處在線上的世界中，有時候會對僱員的工作負荷發生失察。制訂資源管理計劃可讓您持續可視化各個貢獻者和團隊的工作負荷。您可以藉此有效平衡所有資源，全盤掌握團隊如何實現目標的情況。什麼是資源管理？資源管理，即團隊資源和活動的規劃和排定流程。資源可包括從設備、財務資 ... - [AI for work skill badge](/zh-tw/certifications) 生產力 - [沉沒成本詭局如何影響我們的決策](/zh-tw/resources/sunk-cost-fallacy) 生產力 策略規劃 專案管理 - [內容撰稿人](/author/caeleigh-macneil) In January 1976, the supersonic Concorde jet went wheels-up for its first commercial flight after an investment of $2.8 billion from the British and French governments. But even w ...