Sunk cost fallacy

Project appraisal.

The sunk cost fallacy is the mistaken belief that already-committed costs ('sunk costs') are relevant for financial decision making.

In reality it is only the opportunity costs of resources that are relevant.

Consequences of the sunk cost fallacy include:

• Continuing with projects that should be discontinued, and "throwing good money after bad";
• Failure to close out loss-making market positions.

See also

• Cognitive bias
• Incremental cash flows
• Opportunity cost
• Project appraisal
• Stop-loss limit
• Sunk costs