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This page was translated from the German original, partly by machine. Some passages may read awkwardly or contain inaccuracies. When in doubt, please read the original.

Sunk Cost Fallacy

In short

Costs already invested seemingly justify further bad investments.

We've already invested so much!

Definition​

The sunk cost fallacy is the irrational tendency to continue an unsuccessful project, a bad decision, or a toxic situation simply because time, money, effort, or other resources have already been invested.

Viewed rationally, past investments should play no role in future decisions — only the expected future costs and benefits are relevant.

DE: Versunkene-Kosten-Falle (Sunk Cost Fallacy)

The sunk cost fallacy is closely connected to several other biases:

  • Loss aversion: Costs already invested feel like losses that should be avoided.
  • Status quo bias: The existing is preferred, changes avoided.
  • Escalation of commitment: The more has been invested, the harder it is to quit.
  • Endowment effect: What "belongs to us" is valued more highly than objectively justified.
  • Cognitive dissonance: The contradiction between investment and bad outcome creates discomfort.
  • Self-justification: Admitting mistakes threatens the self-image.

Examples​

The Failed Project​

An IT project has been over budget and behind schedule for two years. Despite poor prospects, it continues: "We've already invested 2 million, we can't stop now!"

The Broken Car​

Month after month, expensive repairs on an old car: "I've already put in so much money, I can't afford a new car now."

Studies or Vocational Training​

An unloved degree program is finished because "otherwise the four years were for nothing" — instead of switching to a suitable subject.

Loss-Making Gambling​

Placing further bets at the casino to "win back" previous losses — which usually leads to even greater losses.

Berlin Airport BER​

Originally planned for 2011 and budgeted at 2.83 billion euros. After countless mishaps and delays, opened in 2020 — for over 7 billion euros. "We have already invested so much, now we have to keep going."

Stuttgart 21​

The rail project was originally supposed to cost €2.5 billion; it is now over €10 billion. Despite massive protests: "The project is already too far along to stop."

Elbphilharmonie Hamburg​

Planned for 77 million euros (2007), final cost: 866 million euros. Every halt would have saved money — but the millions already invested "justified" carrying on.

Effects​

  • Waste of resources: money and time are poured into hopeless projects.
  • Escalation of problems: bad situations get worse and worse.
  • Missed opportunities: better alternatives are overlooked or rejected.
  • Emotional burden: clinging to hopeless situations creates stress.
  • Self-deception: denial of reality intensifies with every further investment.

Counter-Strategies​

  • Zero-based thinking: "Would I start fresh today if the previous costs didn't exist?"
  • Define exit points: set clear criteria in advance for when a project is ended.
  • External perspective: ask uninvolved people for their honest assessment.
  • Consider opportunity costs: what could be achieved with the resources instead?
  • Pre-mortem: think through possible failure scenarios before projects.
  • Regular evaluation: evaluate projects objectively at fixed intervals.

Sources​

  • Wikipedia: Sunk cost
  • Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes.
  • Heath, C. (1995). Escalation and de-escalation of commitment in response to sunk costs.