Sunk-Cost Fallacy

Overview

The sunk-cost fallacy is the tendency to let prior, irrecoverable investments (money, time, effort, reputation) distort current decisions. Only marginal future costs and benefits should drive the next choice — sunk costs are already spent regardless of what you decide next. Composes with loss-aversion-prospect-theory (mechanism), expected-value-and-kelly (correct rule), regret-minimization, and inversion (fresh-start test).

When to Use

• "We've come too far to quit" is the dominant argument for continuing
• A project, feature, position, or relationship is being maintained despite negative marginal returns
• Decision-makers defend the original choice rather than evaluating current trajectory
• Team is doubling down after failure without re-examining the underlying thesis
• "We already built our own model / spent the AI capex" is the reason to keep an in-house or on-prem AI stack instead of migrating to a cheaper, better hosted model — or a founder keeps a commoditized AI-wrapper going because of prior investment despite falling API prices and rising foundation-model capability

Not when: prior investment genuinely reduces future marginal costs; negative signal is short-term variance; cost of switching exceeds cost of continuing.

Coaching Novices (Adaptive Front Door)