Sunk cost

What It Means

A sunk cost is money, time or effort that's already spent and can't be recovered, no matter what you choose next. Because it stays spent either way, economists advise leaving it out of the decision and comparing only the costs and benefitsBenefits packageEverything an employer offers on top of wages, such as health insurance, paid leave and a retirement plan, which can be worth thousands of dollars a year. See more still ahead. The sunk cost fallacy is the pull to keep going with something because of what you've already put in, even when what lies ahead no longer justifies it.

How It Sounds at Home

• "We've already put too much into it to stop now."
• "I paid for the ticket, so I'm going."
• "Don't throw good money after bad."

The Breakdown

A short example. Jordan has spent $3,000 on repairs to an older car over the past year. The mechanic now quotes $1,800 for the next one. Jordan's first thought is, "I can't walk away after putting $3,000 into it." Looking only ahead: repaired, the car is worth about $2,500 to Jordan, so repairing nets $700 after the $1,800 bill. Sold as is, it brings $1,000. Either way, the $3,000 is gone.

Where it goes wrong. The earlier repairs make the new bill feel like protecting an investment, so Jordan pays the $1,800 and ends up $300 worse off than selling would have left them. The same pull shows up with a gym membership nobody uses, a half-finished course, or a concert ticket that drags someone out while they're sick.

What to watch for

• Phrases like "we've already paid for it" or "it would all be wasted."
• A decision that looks different when you imagine starting from zero today.
• Refunds, resale or cancellation. Any part of the money you can get back isn't sunk, so check before you decide.
• Time and effort count too, like years spent on a plan that no longer fits.

Good to Know

The St. Louis Fed's advice for thinking like an economist is to set aside costs that are already paid and can't be recovered, and to weigh only the costs and benefits still to come. Researchers who study the sunk cost fallacy describe it as giving an option extra weight because of what has already gone into it. Before you decide, check whether any of the spending can be refunded or resold, since that part still counts.

Related Terms and Categories

• Opportunity cost

  The value of the next-best option you give up when you make a choice, whether the thing given up is money, time or something else.

• Decision fatigue

  The idea that making many decisions in a row wears down the quality of later choices, a popular claim whose research evidence is disputed.

• Planning fallacy

  The tendency to underestimate how long a task will take, even when similar tasks have run late before.

• Needs vs wants

  The split between costs you must pay to live, work and protect what you have (needs) and extras that would be nice to have (wants).

Household money and budgeting