Member-only story
Sunk Costs: What They are and When to Ignore
If you’ve ever watched an entire movie you didn’t enjoy or ate food you didn’t like — just because you paid for them, you’ve experienced the sunk cost fallacy.
In these examples, the money you spent on the movie and food is a sunk cost. The reasoning behind your decisions to watch the movie and eat the food illustrates the sunk cost fallacy.
Sunk costs are an inescapable part of life. They can become a problem when you use them to justify your decisions, like when you don’t accept that you wasted money or made a mistake.
In this article, we’ll cover what sunk costs are and how the sunk cost fallacy affects your decisions. We’ll also suggest ways to calculate sunk costs to help you decide when to ignore them.
What are Sunk Costs?
Sunk costs are costs you’ve already incurred and cannot get back.
In economic terms, a sunk cost is money you’ve spent, but can’t recover. Sunk costs also apply to time or other resources you spend and can’t get back.
When you can recover time or money spent on something, it’s not a sunk cost. Let’s say you buy an item you don’t want. If you return it to the store or sell it for the same amount you spent, it’s not a sunk cost.
