The Sunk Cost Fallacy
Why We Stay in Bad Financial Situations
The Sinking Feeling: A Timeline
It often starts small. You buy a car, and things are great. Then, the repairs begin. Each investment makes it harder to walk away.
6 Months: Transmission Light
$2,000
“It’s a one-time thing. Just need to fix it.”
10 Months: Radiator
$800
“Well, I’ve already put $2,000 in, can’t stop now.”
Now: Suspension Quote
$1,500
“I can’t waste the $4,000 I’ve already spent…”
What is the Sunk Cost Fallacy?
It’s our brain’s irrational belief that costs we’ve already paid (the “sunk” costs) should influence our *future* decisions.
The Fallacy Path
The Rational Path
Why Can’t We Let Go?
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1
Fear of Waste
We hate admitting that our past effort or money was “wasted,” so we waste more to try and fix it.
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2
Consistency Bias
We want to be seen as people who “stick to their guns” and finish projects, even bad ones.
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3
Endowment Effect
Once we own something (or a project), we irrationally value it higher than someone else would.
Cost Comparison
Sunk (Past) vs. At Risk (Future)
How to Break Free
Next time you feel trapped, ask this single question:
“If I were starting from scratch today, knowing what I know now, would I still make this choice?”