Why we throw good money after bad

The sunk cost fallacy is the tendency to continue an endeavor once an investment in money, effort, or time has been made, even when continuing is no longer the best decision. Sunk costs are costs that have already been incurred and cannot be recovered—they are in the past, gone, irretrievable. Rationally, they should not affect current decisions (which should be based only on future costs and benefits). But emotionally, we hate "wasting" past investment, so we continue bad situations trying to justify what we have already spent.

" The fallacy: you cannot get those sunk costs back regardless of what you do now. Continuing bad situations does not honor past investment—it adds new costs (time, money, opportunity) to costs already lost.

The sunk cost fallacy is driven by several psychological forces: *Loss aversion*: Admitting failure feels like accepting a loss. We hate losses, so we continue trying to turn loss into gain, even when impossible. *Escalation of commitment*: The more you have invested, the harder it is to quit—past investment becomes justification for future investment, creating a cycle. " *Emotional attachment*: Investment creates attachment.

The business, relationship, project becomes part of identity. Quitting feels like losing part of self. *Waste aversion*: Humans hate waste. "Throwing away" past investment feels wrong, even though continuing wastes even more.

The fallacy is irrational: economically, sunk costs should be ignored. Only future costs and benefits matter. But psychologically, we cannot ignore sunk costs—they haunt us, driving continued investment in bad situations. Organizations fall into this too: companies continue failing products because of past R&D investment, militaries escalate wars to justify soldiers already lost, governments fund failing projects to justify money already spent.