What is Sunk Cost Fallacy?
TL;DR
The sunk cost fallacy is when you continue investing in something because of what you've already spent, even when it no longer makes sense to continue.
Example
You've spent 200,000 kr building a feature nobody uses.
The sunk cost fallacy sounds like:
- "We can't abandon it now, we've already invested so much!"
- "Let's spend another 50,000 kr to make it work."
- "If we stop now, all that money was wasted."
The rational response: Those 200,000 kr are gone regardless of what you do next. The only question that matters is: "Will the next 50,000 kr generate more value than spending it on something else?"
If the answer is no, stop. The previous investment is irrelevant.
More examples:
Bad movie: You paid 150 kr for a movie ticket. 30 minutes in, you realize it's terrible. Do you stay because you "already paid"? That's the sunk cost fallacy. The 150 kr is gone either way. The question is: do you want to waste 90 more minutes?
Software subscription: You've paid for a tool for 2 years but barely use it. Renewing because "we've already invested in learning it" is the sunk cost fallacy.
Hiring: You spent months recruiting someone who isn't working out. Keeping them because of the hiring investment is the sunk cost fallacy.
Explanation
Why We Fall for It
The sunk cost fallacy is deeply human. We're wired to:
Hate waste. Abandoning something feels like admitting the original investment was a mistake.
Seek consistency. We want our past and present decisions to align. Changing course feels like saying "I was wrong."
Avoid loss. Psychologically, losses hurt more than equivalent gains feel good. Stopping something crystallizes the loss.
The Core Mistake
The fallacy confuses two different questions:
- "Was the original investment a good decision?" (Looking backward)
- "Is continuing a good decision?" (Looking forward)
Question 1 is interesting for learning, but irrelevant to what you should do next.
Question 2 is the only one that matters for decisions.
How to Escape It
Ask the fresh start question: "If I were starting from scratch today, with no prior investment, would I begin this project?" If not, why continue it?
Consider opportunity cost: The time and money you spend continuing could go elsewhere. What's the best alternative use?
Set kill criteria upfront: Before starting a project, define what would make you stop. "If we don't see X result by Y date, we'll reassess."
Separate learning from deciding: Yes, analyze what went wrong. But don't let that analysis trap you into continuing.
Why It Matters
For Business Owners
Cut losses faster. The best companies kill failing projects quickly. They don't let past investments drag them into deeper holes.
Make clearer decisions. When you recognize the fallacy, you can argue: "I know we spent a lot, but that's not a reason to spend more."
Reallocate resources. Every dollar and hour spent on a failing project is a dollar and hour not spent on something that might work.
Where It Shows Up
Product features: "We already built it, so we need to ship it" (even if users don't want it)
Business relationships: "We've been with this vendor for years" (even if there are better options)
Marketing campaigns: "We've already spent the budget" (even if it's not working)
Hiring: "We've invested so much in training them" (even if they're not performing)
Technology: "We've built everything on this platform" (even if it's holding you back)
The antidote is always the same: focus on future value, not past costs.
Common Misconceptions
Need help with your digital project?
We build websites, apps, and digital solutions for businesses.
Get in touch