The sunk cost fallacy refers to the tendency to continue investing in a decision, project, or activity because of the resources that have already been invested, rather than based on its current value or potential for future returns.
For example, a person may continue to work on a failing business because they have already invested a lot of time and money, even though it would be more rational to cut their losses and move on to a more promising opportunity. Or a company may continue to invest in a product line that is not performing well, simply because they have already invested significant resources into its development and marketing. Or hold onto underperforming assets, such as real estate or stocks, because they have already invested significant resources into them.
Here are some ways to protect yourself from the sunk cost fallacy:
By following these steps, you can protect yourself from the sunk cost fallacy and make decisions based on current value and potential for future returns, rather than past investments.