Sunk Cost Effect (Achievement Nudge)
Last Updated on April 30, 2025 by Bill Truby
Ever wonder why you hold on to something longer than you know you should, even when it’s going south? It’s probably because of a psychological condition called the “sunk cost effect.”
The “sunk cost effect” is when you invest in something, but it’s an investment you can’t recover. It could be the time it takes to develop a new relationship, the purchase of a timeshare, the time and energy it takes to start a new direction or venture. But then the situation sours and you continue to hold on to it, even if you experience MORE loss. What’s going on? Some would call it commitment. But, it’s probably not. More often, it’s what psychologists, economists and scientists call the “sunk cost effect.”
Psychologists say we are more motivated by loss aversion than by attaining gain. Holding on, then, to that relationship, timeshare, direction or decision, even though it has soured, gives the illusion that we have not lost the initial investment…even if we would gain more, in the long run, by letting go.
Here’s an example. You buy an expensive ticket for a concert. When the night of the concert comes, you don’t feel like going at all. You’d be happier staying home, sitting by a cozy fire with a cup of hot tea, and reading a good book. But what do you do? You go to the concert. You’ve already sunk money into a ticket you can’t recoup, so you persist in your decision to go.
Another example: A country continues in a war that is unlikely to be won, even though additional lives will be lost. Stepping away from the war would keep additional soldiers from perishing. But to leave the war would make the initial loss of lives unbearable. This is the power of the “sunk cost effect.” More lives are lost to make the initial investment of lost lives more tolerable.
Weird, huh? Yet, it occurs all the time, for all of us. Let’s say you invest in the training of a new hire. That is a “sunk cost loss” that can’t be recouped. If the new hire doesn’t work out, a leader may still hold on to that employee much longer than appropriate. To fire this employee and start over makes the initial investment seem like a bigger loss. It’s no different when purchasing a new phone system, Internet provider, or even choosing one of two paths in the woods – all can become the stage for “the sunk cost effect,” where we continue longer than we want and “throw good money after bad.”
What to do? Take an inventory of your life. Look honestly at everything, using the phrase, “This is in my life because… (Blank).” Then fill in the blank. If you don’t like your answer, question whether you are holding on because of the “sunk cost effect.”
If you are, the only way you’ll be able to let go is to separate your new decision from the initial investment…MUCH easier said than done. Your decision must be made while looking forward. Continuing to look backward at your initial investment of time, money, energy, or even lives…will tend to perpetuate the sense of loss of that initial investment.
The “sunk cost effect” is neither logical nor objective, and it actually causes you to lose more. It’s as strange as this: I ask for $10.00. Later, I tell you I can’t pay you back, but if you’ll loan me $20.00, I might be able to use that money to buy and sell some product to pay back the entire $30.00. You give me the $20.00. Now you are even more invested. Later still, I tell you I can’t pay back the $30.00, but if you give me another $15.00, I can TRY to get and sell some more products to pay you all the money back….The “sunk cost effect” determines how far you’ll go down this trail.
Now, if you’re having a hard time with this nudge, let’s play it out together so you can see how it works. Send me $10.00, OK? I’ll give you the next step when I get your check.
This article is part of our ongoing Achievement Nudge series—short, witty, and often inspirational articles to spark your personal and professional growth. Explore more nudges on our blog, or sign up for our weekly Nudge and News email. Each edition includes an Achievement Nudge plus leadership, professional development, and personal growth videos and articles to keep you inspired and on track.
