“Are you held back by the thought of getting your money’s worth?” - The Strange Ledger Within Us
An hour into a movie I paid 15,000 won to see. The story is painfully boring, and the actors’ performances are awkward. My friend sitting next to me whispers, “Should we just leave?” But somewhere in my mind, I hear a shout: “No! My 15,000 won! I have to get my money’s worth!” In the end, I stay in my seat, dozing off until the credits roll.
Or consider the expensive pasta at a fancy restaurant that turns out to be less tasty than expected. Even though I’m already full, I force myself to finish the plate, thinking, “How much did this cost?” Eventually, I end up feeling sick.
Our daily lives are filled with strange decisions where we forgo current enjoyment and future benefits due to money or effort already spent. We commonly refer to this as ‘getting our money’s worth.’ Behavioral economics names this phenomenon the ‘sunk cost fallacy.’ Here, ‘sunk cost’ literally refers to costs that have been buried and cannot be recovered, like spilled water, lost time, or spent money. According to economics textbooks, a rational person should not factor sunk costs into future decisions at all. The costs that have already vanished should be disregarded, and the choice that benefits me the most at this moment should be made. But why do we struggle to adhere to this simple principle and get caught up in past costs?
Everyday Traps: Our Lives Are Full of Sunk Costs
The sunk cost fallacy is not limited to movie tickets or food expenses. Our lives are surrounded by traps of sunk costs, big and small. Have you ever experienced the following?
- Plummeting Stocks and the Temptation to Average Down: A stock you invested in with high hopes is continuously falling. Rationally, it makes sense to cut your losses and invest in something more promising, but many investors instead pour in additional funds to lower their average purchase price, thinking, “If I sell now, I’ll realize a loss, but if I average down, I can at least break even.” This is a classic example of the sunk cost fallacy. Investment sage Warren Buffett advises, “If you realize you’re digging yourself into a hole, the first thing you should do is stop digging,” yet we dig deeper in an attempt to avoid the pain of loss.
- A Failed Relationship and the Regret of Time Spent: Even when a current relationship is no longer happy and the future looks bleak, one might hesitate to break up, saying, “I can’t end it because I’ve invested five years together.” The massive sunk costs of time and emotion lead to the choice of enduring current unhappiness and sacrificing future happiness. This occurs not only in romantic relationships but also in long-standing friendships or colleague relationships that no longer provide positive influence.
- A Major in College That Doesn’t Suit You and the Regret of Tuition Fees: When realizing that a college major you’ve spent years and significant tuition on doesn’t fit you, it’s often hard to give it up. The sunk costs of time and money lead to tragic choices of spending a lifetime in a field that doesn’t suit you. This becomes a massive sunk cost prison that confines personal potential.
- A Side Project That Has Lost Its Passion: Recently, an IT community shared stories of failed side projects that resonated with many. A project that started with ambition lost steam over time as team members faced realistic limitations. Objectively, it would have been beneficial for everyone to halt the project, but no one dared to suggest stopping due to the time and effort already invested. After the project fizzled out, one designer lamented, “I worked so hard for two months, and it feels like I have nothing to show for it.” This statement accurately reflects the deep sense of loss that sunk costs leave behind.
All these examples point to one commonality. The sunk cost fallacy is not merely a financial issue; it is a flawed accounting method for all finite resources we value, such as time, effort, and emotion. Expanding on the concept of ‘mental accounting’ proposed by Nobel laureate Richard Thaler clarifies why this occurs. Just as we manage our money by dividing it into categories like ‘vacation funds’ and ‘food expenses,’ we also compartmentalize our resources into invisible accounts like ’time spent on Project A,’ ’emotions invested in B,’ and ‘youth dedicated to C.’ Making a decision to give something up feels like a painful act of closing an account with a ‘loss.’ It doesn’t matter whether the currency of that account is money, time, or emotion. The reason breaking up with a five-year partner feels much more painful than selling a 5 million won stock is likely due to the heavier weight of the sunk costs recorded in the ’emotion’ account.
Why Can’t We Stop Because We Feel It’s a Waste? - The Psychology of Sunk Costs
The reason we fall into such irrational traps is deeply related to how our brains operate. Behavioral economists identify three powerful psychological drivers behind the sunk cost fallacy: ‘loss aversion,’ ‘cognitive dissonance,’ and ‘escalation of commitment.’
The Root of All Evil: The Pain of Losing (Loss Aversion)
Our brains are designed to feel the pain of losing much more intensely than the pleasure of gaining something. According to the ‘prospect theory’ established by another Nobel laureate, Daniel Kahneman, and his colleague Amos Tversky, people feel the pain of losing 1 million won about twice as intensely as the pleasure of gaining the same amount.
This ‘loss aversion’ is the core driver of the sunk cost fallacy. Leaving a boring movie halfway through is an act of confirming the loss of the ‘ticket price.’ The moment you sell a stock, the ‘paper loss’ that existed only on the books turns into the painful reality of a ‘realized loss.’ To avoid this immediate and sharp pain of loss, we willingly gamble more time and money on uncertain futures, thinking, “I’d rather endure a small pain now than face a potentially larger pain later.”
The Defense Mechanism of Ego: “I Wasn’t Wrong!” (Cognitive Dissonance and Self-Justification)
We all want to believe we are ‘rational and wise decision-makers.’ However, when a past decision clearly proves to be wrong, a severe psychological contradiction arises between the belief that ‘I am wise’ and the reality that ‘I made a foolish decision,’ known as ‘cognitive dissonance.’
To resolve this uncomfortable feeling, we choose one of two paths. The first is to acknowledge our mistake and reverse the decision. The second is to deceive ourselves into believing that our past decision was correct, distorting reality. Unfortunately, in many cases, our ego encourages us to choose the second path.
For example, imagine a department head who ambitiously introduced new software that is causing complaints from employees and reducing efficiency. Halting the project would mean publicly admitting that his judgment was wrong, which would be a significant blow to his ego. Therefore, he justifies his decision by saying, “The employees just need more time to adapt,” or “If we use it a little longer, efficiency will improve,” pouring more resources into justifying the existing decision. Coupled with the desire to prove to others that “my decision wasn’t wrong,” he sinks deeper into the quagmire.
The Snowballing Obsession: ‘Escalation of Commitment’
“I’ve come this far; I can’t give up now.”
The more time, money, and effort we invest in something, the greater our psychological attachment and sense of responsibility become, making it hard to give up. Psychologist Barry Staw coined the term ‘escalation of commitment’ to describe this phenomenon. What may start as a small decision becomes an emotional issue once resources are invested, leading to thoughts like, “Look at how much I’ve put into this.”
This effect creates a dangerous feedback loop. ‘Initial investment → unexpected problems arise → “I’ve already invested too much; let’s put in a little more to solve it.” → more resources invested (increased commitment) → bigger problems arise → “If I give up now, all my efforts will be wasted.” → even more resources invested…’ This cycle continues until the entire project meets a disastrous end.
These three psychological forces do not operate independently. Instead, they reinforce and amplify each other, forming a ‘psychological iron triangle’ that keeps us stuck. When a project encounters setbacks, the ‘loss aversion’ tendency ignites the emotional spark of “I don’t want to acknowledge this loss.” Then, ‘cognitive dissonance’ pours fuel on the self-justification fire with thoughts like, “My initial decision was right; I just need to push a little more.” In this blaze, the logic of ‘escalation of commitment’ pushes us deeper into the trap with thoughts like, “I have to keep going, even if it’s just to justify how far I’ve come.” Because of this powerful psychological chain reaction, the sunk cost fallacy becomes a massive trap that is hard to escape from with willpower alone.
From the ‘Concorde Fallacy’ to the ‘Mirage of the Metaverse’ - A Museum of Failures
The sunk cost fallacy extends beyond individual mistakes, leading to massive tragedies that can change the fate of companies and shake national finances. The history of failures contains lessons we must remember.
Exhibit A: Timeless Classical Failures
- The Concorde Fallacy: This case has become synonymous with the sunk cost fallacy. In the 1960s, the British and French governments embarked on developing the supersonic passenger aircraft ‘Concorde,’ which would travel from Paris to New York in just three hours. However, from the outset, warnings about terrible fuel efficiency, immense noise, and high fares indicated the project was not viable. A rational judgment would have called for an immediate halt to the project, but both governments insisted, “We’ve already invested astronomical amounts in research and development; we can’t give up now.” Ultimately, after pouring in a staggering total of $19 billion (approximately 25 trillion won today), they could not bear the accumulated losses and ceased operations in 2003. The ‘Concorde Fallacy’ serves as a historical lesson on the horrific outcomes when national pride and sunk costs combine.
- The Fall of Nokia and the Tragedy of Kodak: Nokia, once the king of the mobile phone market in the 2000s, failed to respond adequately to the smartphone era ushered in by the iPhone and Android. They clung to their own operating system, Symbian, into which they had invested heavily for years. Their failure to acknowledge the massive market shift led to their downfall. Ironically, Kodak was the first company to invent the digital camera but hesitated to transition to digital due to the sunk costs tied to their film business, fearing that success in digital would collapse their film revenue. Ultimately, Kodak became an artifact of the past due to the future they created.
Exhibit B: New Disasters of Our Time
The sunk cost fallacy is not just a story of the past. Right now, new forms of failure combining cutting-edge technology and massive capital are repeating around us.
- The ‘Ghost Light Rail’ Incident in Korea: In the 2010s, several local governments jumped into light rail projects, promising a rosy future. However, the results were disastrous. The Yongin Light Rail predicted a demand of 161,000 passengers per day, but initial actual ridership was only 9,000. The Busan-Gimhae Light Rail’s actual demand was only 17% of the forecast, and the Uijeongbu Light Rail faced bankruptcy after accumulating over 360 billion won in losses. What do these projects have in common? From the beginning, there were criticisms that demand forecasts were inflated, and warnings about the lack of viability were ignored. Once billions of won in taxes were invested and construction began, no one could say, “Let’s stop.” The political logic of “We can’t waste the money already spent” overwhelmed economic rationality, resulting in Yongin City accumulating 850 billion won in debt and becoming a ‘money-eating hippo’ that uses tax money to cover annual operating losses.
- The Mirage of the Metaverse: The metaverse craze that swept the globe from 2021 to 2023 is a perfect example of collective sunk cost fallacy. Facebook changed its name to Meta and poured tens of trillions of won into VR/AR while incurring massive losses. In Korea, large companies like KT and SKT, as well as public institutions like the Seoul City government, jumped into building metaverse platforms. But what was the outcome? Most platforms are empty, and services like KT’s ‘Mincle’ and Seoul’s ‘Metaverse Seoul’ quietly ended. This phenomenon is not merely a few companies making poor judgments; it was a ‘blind investment’ triggered by the FOMO (Fear Of Missing Out) mentality. Once massive amounts of money and manpower were invested, the typical escalation of commitment appeared, where they ignored the clear reality that “No one is using this” and held on to the hope that “If we invest more, we will eventually succeed.”
- The NFT Craze and the Tragedy of ‘Rug Pulls’: The NFT (non-fungible token) market, which emerged alongside the metaverse, starkly illustrates the psychology of sunk costs. Numerous NFT projects skyrocketed in value only to become worthless overnight. One analysis suggests that 95% of NFT projects have essentially lost their value. However, many investors cannot accept their losses. Even if an NFT purchased for 5 million won drops to a value of 50,000 won, they cannot sell it because doing so would confirm a 99% loss. They cling to the hope that “It will rise again someday” while holding onto worthless digital data. This represents a modern digital tragedy created by loss aversion.
These new failure cases reveal an important truth. The sunk cost fallacy can spread like a ‘collective epidemic’ when combined with social trends or industrial fads, extending beyond individual or organizational cognitive biases. In the midst of the metaverse and NFT frenzy, one company’s investment pressured others with the thought of “We can’t fall behind,” creating a massive social sunk cost. In such an environment, it becomes even harder for an individual to make rational judgments. When everyone is running in the same direction, it is nearly impossible to stop and say, “This doesn’t seem right.”
How to Escape the Hole - The Art of ‘Cutting Losses’ and the Wisdom of ‘Pivoting’
So far, we have examined how powerful and dangerous the trap of sunk costs can be. But is there a way to escape this swamp? Fortunately, there are concrete strategies to understand our irrationality and overcome it. This is not just about stopping failures; it’s about turning failures into stepping stones for success.
My Escape Toolbox
When you feel trapped by the sunk cost fallacy, try using the following tools. They will greatly help clear the fog of emotion and make rational judgments.
- Ask ‘Zero-Base’ Questions: This is the most powerful and immediate tool. Ask yourself, “What if I forget all the money, time, and effort I’ve invested so far? If I were to start over with only the information I have at this moment, would I still make this choice?” This question forces you to break free from past shackles and make the wisest judgment from the present perspective.
- Set ‘Kill Criteria’ in Advance: Before starting an investment or project, it’s important to establish clear ‘stop criteria’ in a state free from emotions. For example, “If this stock drops by 20%, I will sell without exception,” or “If this project doesn’t achieve goal X within six months, we will reassess.” This is akin to a mountaineer who must descend at a set time in bad weather. It allows you to act according to pre-established principles without being swayed by emotions.
- Practice ‘Pre-Mortem’: Before starting a project, practice asking team members, “Let’s imagine that a year from now, this project has failed miserably. What are the reasons for the failure?” This process helps identify potential risks in advance and establish specific plans and ‘stop criteria’ to prevent failure.
- Borrow an ‘Outside Eye’: The more involved we are in our decisions, the easier it is to lose objectivity. In such cases, the advice of an emotionally detached third party can play a decisive role. Ask a trusted friend, mentor, or expert, “Is there something I might be missing?” Their objective perspective may reveal truths you haven’t seen.
- Calculate ‘Opportunity Costs’: Shift your focus from “What I’ve lost” to “What I could gain moving forward.” For instance, “In the hour I spend watching this boring movie, I could be reading a good book or taking a walk, gaining greater happiness.” Analyzing the benefits of investing time and resources in other promising opportunities instead of clinging to a failed project can give you the courage to let go of your current choice.
- Use a ‘Decision Matrix’: To exclude emotional judgments, you can create a simple chart. List various alternatives and assign weights to important criteria like ‘cost,’ ’expected return,’ and ’likelihood of success,’ then score each alternative. This process helps systematically analyze complex issues and derive the most rational conclusions.
My Self-Diagnosis Checklist for Sunk Cost Fallacy
Is there something currently holding you back? Use the checklist below to self-diagnose. This process will help you objectively assess how deeply you are trapped in the sunk cost fallacy.
Self-Diagnosis Checklist for Sunk Cost Fallacy
| Diagnostic Item | Question | My Score (1-5) or Answer |
|---|---|---|
| 1. Self-Justification | Is the reason I continue this work because I genuinely believe in future success, or because I don’t want to admit my initial decision was wrong? (1=I don’t want to admit it, 5=I believe in success) | |
| 2. Loss Aversion | Is my biggest motivation the fear of not wanting to ‘waste’ the money/time/effort I’ve already invested? (1=Not afraid, 5=Very afraid) | |
| 3. Escalation of Commitment | Have I ignored negative signals or warnings in the past? Am I more attached to this work now than I was when the first problem arose? | Yes / No |
| 4. Opportunity Cost | What is the best alternative for utilizing my time and money right now? Is that alternative realistically better than the future expectations of what I’m currently doing? | (Write specifically) |
| 5. Zero-Base Test | Considering everything I know, if I were to make this decision today for the first time, would I willingly choose this path? | Yes / No |
This checklist is not meant to criticize your decisions. Rather, it serves as a mirror to help you clearly recognize the psychological forces at play in your mind. Honestly reflecting on your image through this mirror is the first step toward change.
Giants Who Turned Failures into Opportunities: The Wisdom of ‘Pivoting’
The greatest skill in escaping the sunk cost fallacy is not just cutting losses. It is the wisdom of ‘pivoting’—discovering new possibilities amid the wreckage of failed projects and boldly changing direction.
- Success Story 1: The Birth of Slack: In 2009, a team led by Stewart Butterfield poured years and millions of dollars into developing an online game called ‘Glitch.’ However, the game showed clear signs of failure. Instead of clinging to the sunk costs and continuing development, they made a rational decision. While reflecting on the failed project, they discovered the value of an internal communication tool they had created for smooth communication among team members during game development. They boldly halted the game development and focused all their efforts on turning this small internal tool into a product. The result was the corporate messaging platform ‘Slack,’ which was later acquired for about $27.7 billion (approximately 38 trillion won).
- Success Story 2: The Innovation of Instagram: The predecessor of Instagram was a location-based check-in app called ‘Burbn.’ Users could check in at specific locations, share plans, and upload photos. However, due to too many features, the app became complicated, and user response was minimal. Founders Kevin Systrom and Mike Krieger discovered through data analysis that users were only enthusiastic about the ‘photo sharing’ feature, ignoring the other functionalities. They made a monumental decision to discard all the features they had developed, focusing solely on the core function of ‘taking photos, applying filters, and sharing.’ This bold pivot, treating all their past efforts as sunk costs, resulted in the creation of ‘Instagram,’ which was acquired by Facebook for $1 billion (approximately 1.4 trillion won) less than two years after its launch.
The stories of Slack and Instagram go beyond simply cutting losses. They coldly reevaluated the entire portfolio of sunk costs from failed projects. Within that, they discovered the most shining assets that no one had noticed (Slack’s communication tool, Burbn’s photo-sharing feature). This is the decisive difference between ‘cutting losses’ and ‘pivoting.’ While cutting losses answers the question, “Should I continue this project or not?” pivoting asks, “I will abandon the original plan. But is there something among what we’ve built so far that could be the seed for a new plan?” This redefines failure as an opportunity for ‘reallocation’ rather than a ‘loss,’ representing a higher level of decision-making.
Say Goodbye to Past Costs and Choose Future Value
We have deeply explored the psychological trap of the sunk cost fallacy, which anyone can easily fall into. From the trivial habit of watching a boring movie to national projects that waste trillions of won, this invisible force leads us to make irrational decisions in various aspects of our lives.
This is not because you are foolish or lack willpower. The strong instinct to avoid loss, the pride in defending your decisions, and the attachment to effort already invested are all very human emotions. The goal should not be to become a perfectly rational robot. What’s important is to recognize that such traps exist within us and to consciously strive not to be swayed by them.
The various tools introduced in this article—zero-base questions, pre-mortem, opportunity cost analysis—will serve as a compass to help you break free from the ghosts of the past, stand firmly in the present, and look toward the future. While the past cannot be changed, the future depends on your choices right now.
The small courage to leave the theater without watching the ending of a boring movie, the decision to halt a hopeless project and seek new opportunities, and the choice to end an unhappy relationship to prioritize your happiness—all of these are not evidence of ‘failure.’ Rather, they mark the beginning of the most wise and courageous ‘success’ by breaking the obsession with past costs and choosing future value. Now, where will you invest your most valuable resources: time and energy?