7 Psychological Biases That Explain Every Bad Business Decision Ever Made

Sunk Cost Fallacy: The Reluctance to Let Go

The sunk cost fallacy occurs when individuals continue investing in a decision based on the cumulative prior investment (time, money, resources) rather than future potential gains. In business, this can lead to the continuation of failing projects, as decision-makers are reluctant to abandon investments they have already made. This fallacy can drain resources and stifle innovation, as businesses become trapped in a cycle of throwing good money after bad. To combat the sunk cost fallacy, businesses should focus on forward-looking analysis and be willing to cut losses when necessary, reallocating resources to more promising opportunities.