Psychology › Thinking, memory & biases › Loss aversion
Sunk cost fallacy
1985· Finding or experiment
Well replicatedStrong, repeated evidence.
The tendency to keep investing in a losing course because of money, time or effort already spent.
See it on the Psychology map →What it says
Rationally, only future costs and benefits should matter; money already spent is gone either way. Yet people keep going. In Hal Arkes and Catherine Blumer's 1985 study at Ohio University, theater-goers randomly charged full price for season tickets attended more plays in the first half of the season than those given discounts. In the NBA, higher draft picks got more playing time and were kept longer, even after accounting for how well they played (Staw and Hoang, 1995).
Why it matters
It drives escalation: throwing good money after bad on failing projects, renovations, stock positions or wars. Asking 'would I buy this today, at today's price?' is the standard antidote.
Think of it like
Pouring capex into a struggling building because of the renovation money already in it, when only its future NOI should decide.
The evidence
Status: well replicated. Arkes and Blumer's experiments, including a randomized ticket-price field test, have been repeated widely; sports, business and government records show the same pattern, though real-world effects are often smaller than in surveys.
Open questions
When sticking with an investment is actually sensible, such as protecting a reputation or honoring a commitment; researchers debate where rational persistence ends and the fallacy begins.
Connections (3)
▸Sunk cost fallacy is fueled by Loss aversionWell replicated
The connection
Walking away from money already spent means accepting a certain loss, and losses hurt roughly twice as much as equal gains please. So people keep investing to avoid 'wasting' the earlier outlay, hoping to break even. Prospect theory predicts this: after a loss, people become more willing to gamble to recover it.
Who showed it and when
Hal Arkes and Catherine Blumer at Ohio University (1985) tied the sunk cost effect to Kahneman and Tversky's 1979 prospect theory.
The evidence
Experiments show people hate waste and take bigger risks after losses; the link to loss aversion is a strong theoretical fit but rests partly on interpretation.
Open questions
Whether a dislike of appearing wasteful, or protecting one's reputation, explains sunk-cost behavior better than loss aversion alone.
▸Sunk cost fallacy is reinforced by Cognitive dissonance (Festinger)Mixed evidence
The connection
Pulling out of a failing project means admitting the original decision was a mistake. To avoid that dissonance, people justify the choice and invest more, a pattern called escalation of commitment. Investors holding losers and owners pouring money into a doomed renovation show the same self-justification.
Who showed it and when
Barry Staw's 1976 'Knee-Deep in the Big Muddy' study with business students, and Hal Arkes and Catherine Blumer's 1985 sunk cost studies at Ohio University.
How solid is it?
In Staw's study, students personally responsible for a losing investment put more money into it than those who inherited the decision.
Open questions
Loss aversion, a dislike of waste and concern for reputation also explain sunk cost behavior, so dissonance's share is uncertain.
▸Gambling disorder shares the loss-chasing of Sunk cost fallacyMixed evidence
The connection
'Chasing losses', gambling more to win back what was lost, is a core sign of gambling disorder. It mirrors the sunk cost trap: past losses, which cannot be recovered, drive further bets. In gambling disorder this becomes a cycle that is hard to break. Effective treatment exists, including cognitive behavioral therapy and support groups.
Who showed it and when
Sociologist Henry Lesieur's 1977 book The Chase described the pattern; it is one of nine criteria for gambling disorder in the DSM-5 (2013).
How solid is it?
Chasing is a listed DSM-5 criterion and common among patients; lab studies show people bet more after losses, but a shared mechanism with sunk cost is less tested.
Open questions
Whether loss-chasing in the disorder is an extreme sunk-cost bias or something different, driven by the brain's reward system and the hope of a big win.