Sunk Cost Fallacy
Money and time already spent are gone whichever way you choose, so they cannot break the tie. Here is how to spot the trap and decide on what is ahead.
Real lesson card · Page 1 of 3
Money already gone is gone
Sunk cost
Time, money, or effort already spent that cannot be recovered no matter what you choose next.Example
Sitting through a bad movie because you paid for the ticket — the ticket money is gone whether you stay or leave.Setup
A project has already cost $8,000. Finishing needs $3,000 more, and the finished result would be worth $2,000. Continue or stop?- 1Ignore the $8,000 — it’s spent no matter what.WhyOnly future costs and benefits can change from here.
- 2Compare the remaining $3,000 cost to the $2,000 the result is worth.WhyYou’d spend 3,000 to get back 2,000 — a 1,000 loss going forward.
Takeaway
Stop. The choice depends only on the 3,000-versus-2,000 future math; the $8,000 is irrelevant to it.Myth
Quitting now means all the money and effort were wasted.Reality
The waste already happened. Continuing to protect a sunk cost usually piles more loss on top of it.Recall check from the same lesson
When deciding whether to finish a failing project, the money already spent should weigh heavily in the decision.
Review the explanation
Answer: False. Already-spent money is unrecoverable, so only future costs and benefits should drive the choice; counting sunk costs leads to throwing good money after bad.
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