World 3 · Money psychology · Lesson 6 of 12

Sunk costs and seeing what you expect

Why we keep paying for past decisions, and why we notice evidence that agrees with us.

6 min read · Level: Practical · Free — no account needed to read

The idea

A sunk cost is money, time or effort already spent that cannot be recovered. Sunk-cost thinking is continuing something because of what you have already put in, rather than because of what it will bring from here. Finishing a meal you are not enjoying because you paid for it, keeping a course that is not helping because you are halfway through, repairing a failing car again because of the money already spent on it.

Confirmation bias often travels with it: once we have committed to something, we notice evidence that it was a good choice and overlook evidence that it was not. Together they keep people in bad investments, unhelpful memberships and plans that stopped making sense long ago.

The financial consequence is that good money follows bad. The only costs and benefits that should shape a decision are the ones still ahead.

Why it matters

Letting go of sunk costs is one of the most useful decision skills there is. It saves money, time and energy that would otherwise go into things that have already stopped working.

A real example

The situation

Kemal has spent a lot repairing an old car. It needs another expensive repair, and he feels he cannot give up after all he has put in.

What happened

He compares only the future: the next repair plus likely further repairs, against the cost of a reliable second-hand car. The comparison clearly favours replacing it, and he stops pouring money into the old one.

The takeaway

What he had already spent was gone either way; only the future costs could still be changed.

How people actually behave

Stopping something feels like admitting a mistake, and people strongly prefer not to feel that. Continuing lets them avoid the feeling — at the price of more cost.

Common mistakes

• Continuing something to “get your money’s worth” from what is already spent.
• Seeking only the information that supports a decision you have already made.
• Confusing persistence (valuable) with refusing to stop when the facts have changed.

Think it through

You bought a non-refundable ticket to an event. On the day you feel unwell and would honestly rather stay home.

Does the money you already spent change what the better choice is tonight? Why does it feel like it should?

Questions to think about

• What are you continuing mainly because of what you have already put in?
• What evidence would tell you it is time to stop, and are you looking for it?

Try it: The future-only test

1. Pick one ongoing commitment you have doubts about.
2. Write down only the costs and benefits from today onward.
3. Decide as if you were starting fresh today.

Words in this lesson

• Sunk cost — Money, time or effort already spent that cannot be recovered.
• Confirmation bias — The tendency to notice and favour information that supports what we already believe.