Overview
A sunk cost is a cost already incurred that cannot be recovered whatever choice is made next: a non-refundable concert ticket, money already spent on research and development, or tuition that is not returned if you drop a course. The basic economic rule is to ignore sunk costs and compare only the additional costs and benefits that lie ahead.
Why sunk costs should be ignored
A sunk cost is the same whether you pick option A or option B, so it cannot make a difference between them. A rational decision compares the costs and benefits of continuing versus stopping from now on, together with the value of the alternatives you give up, that is, the opportunity cost. If a certification course you have already paid for turns out to be disappointing, the question is what the remaining hours would yield in that course compared with another course, a textbook or work experience.
The sunk cost fallacy and key studies
In practice people feel a strong pull to continue because of what they have already invested; this is the sunk cost fallacy. Dawkins and Carlisle (1976) called it the "Concorde fallacy", after the Anglo-French supersonic airliner whose development continued despite doubts about its commercial viability.
- Theatre season tickets: Arkes and Blumer (1985) randomly sold university theatre season tickets at full price or at a discount; full-price buyers attended more plays in the first half of the season. Paying more changed behaviour.
- Escalation of commitment: Staw (1976) found that people whose initial investment decision turned out badly tended to allocate even more funds to the same course of action.
- Consumer behaviour: Thaler (1980) used the sunk cost effect to explain why people keep using expensive purchases even when they are uncomfortable.
Limitations and debate
Some argue that honouring sunk costs is not always irrational: quitting can damage one's reputation, and past investment can carry information about future chances of success. Others point out that loss aversion, the reluctance to lock in a loss, and the wish to justify one's earlier decision, linked to cognitive dissonance, work together to produce the effect.
Using it in investing, business and career decisions
In stock investing, the purchase price is the classic sunk cost. Rather than holding a losing share just to "get back to even", the usual advice is to ask whether you would buy it today at the current price. In business, setting stop criteria for each project in advance and having someone other than the original decision-maker run the mid-point review are suggested ways to curb escalation. For career choices where much time has already been spent, such as a major, graduate school or a job change, writing down only the costs and outcomes from now on can help. How the numbers are presented also affects such choices, as discussed under the framing effect and the anchoring effect.
Sources reviewed: 2026-10-16
References
- Staw, B. M. (1976). Knee-deep in the big muddy: A study of escalating commitment to a chosen course of action. Organizational Behavior and Human Performance, 16(1), 27–44.
- Dawkins, R., & Carlisle, T. R. (1976). Parental investment, mate desertion and a fallacy. Nature, 262, 131–133.
- Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior & Organization, 1(1), 39–60.
- Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35(1), 124–140.