Why We Keep Throwing Good Resources After Bad: The Sunk Cost Fallacy Examined.

Why do you keep putting time, money or effort into something that is not working? Often the answer is what you have already spent. The sunk cost fallacy is letting past costs that you cannot get back steer a choice about the future. Researchers call the pattern the sunk cost effect, and it is one of the most replicated findings in behavioural science.

How strong is the pull? A meta-analysis, a study that pools the results of many others, found a medium-sized effect on average.^[13] A similar pattern has been reported in mice and rats as well as people, though what it means is debated.^[16]

What do brain studies show? In one study, people with damage to the ventromedial prefrontal cortex, an area at the front of the brain, showed less of this pull on a goal task.^[27] Other small studies link the effect to a few more brain areas. The next section sets out what each can and cannot show, and the Protocol turns the evidence into four steps.

Is it a sign of low intelligence? One laboratory study suggests not: higher scores on short reasoning and maths tests did not reduce this bias.^[14] Other explanations look at how people weigh their past investment.

One is loss aversion. Losses can weigh more heavily than equal gains, so walking away can feel like accepting a loss.^[3]

Mental accounting adds a bookkeeping layer. On this explanation, closing a losing mental account feels painful, which can encourage people to keep it open.^[4][5][8]

The costs reach well beyond personal choices. A large study of corporate acquisitions looked at fixed-share mergers, deals paid in a set number of the buyer's shares, so the final cost moved with the share price. In these mergers, market-driven increases in the final acquisition cost were linked to fewer later sales of the acquired business.^[28] The link was stronger in firms with fewer financing constraints and while the chief executive who made the acquisition remained in charge.^[28] It is a link in those deals, and it suggests that past spending shapes some large business decisions.

A classic experiment found the same pattern on a small scale. In a simulated business decision, business school students who felt personally responsible for a failing investment put the most extra money into it.^[2] This is called escalation of commitment: putting more into a failing course because of what is already in it. The next section asks why it happens.

Start with value: in mice, the striatum, the brain's central reward-processing hub, released more dopamine when a reward took more effort to get.^[25] Put simply, the harder the animal worked, the stronger the reward signal. This suggests a chemical reason why past effort could make an outcome feel worth more. Whether the same thing happens in human sunk cost choices has not been shown.

If it does, the bias would start before conscious reasoning. The striatum weighs value; it does not deliberate. On this account, by the time you sit down to judge a failing project, past effort may already have raised its value in your eyes.^[25][29]

A brain-imaging study using fMRI found that higher sunk costs mainly activated lateral frontal and parietal areas, toward the sides of the brain.^[9] When incremental costs (the extra cost of carrying on) were lower, areas that include the striatum and the medial prefrontal cortex were activated.^[9] The study detected no overlap between those two activation patterns.^[9] So sunk costs may change which brain network handles the choice.

The second area is the ventromedial prefrontal cortex (vmPFC), low in the middle of the front of the brain. It seems to do two jobs, and sunk costs push them in opposite directions. A brain-imaging study found that past spending reduced the vmPFC's part in the current choice.^[10] The more people had already spent, the less this area, which compares the value of options ahead, took part.^[10]

A later study found the second job. As participants neared the end of a goal, vmPFC activity gave more and more weight to goal-related cues over other options, a kind of selective attention.^[27] The two findings fit together: sunk costs quiet the area's comparison of options ahead, while its focus on the current goal grows. On this reading, the brain stops comparing options and starts defending the choice it has made.

The same study also tested a small group of patients with damage to the vmPFC. On the task, they showed less persistence bias, sticking with a goal for too long.^[27] This one task result, set out in full in the Evidence, does not show that vmPFC damage improves decisions or life outside the experiment.^[27]

The third area is the dorsolateral prefrontal cortex (dlPFC), higher up and to the side at the front of the brain. It is linked to a social rule: do not waste. In the brain-imaging study above, dlPFC activity moved opposite to vmPFC activity during sunk cost choices.^[10] The more this area, linked to the do-not-waste rule, took over, the stronger the bias.^[10]

A brain stimulation study then changed dlPFC activity directly. It used high-definition transcranial direct current stimulation, a weak current passed through the scalp to one precise spot. The task was a lottery, and in this task sunk costs usually led people to cut back. In one group, anodal stimulation of the right dlPFC, a type usually taken to raise activity, increased the tendency to cut back compared with sham (fake) stimulation.^[24] In a second group, cathodal stimulation, usually taken to lower activity, shifted choices in the opposite direction compared with sham.^[24] So changing the area's activity shifted the effect in this task, which points to a causal part in these choices.

Mental accounting, the bookkeeping idea met earlier, is one proposed explanation for why the do-not-waste rule bites. On this explanation, closing an account in the red means accepting the loss, which may hurt, so quitting can feel wrong, not just costly.^[8]

A third brain-imaging study added the insula, an area that processes visceral signals, the gut feelings from the body. In this small study using hypothetical travel choices, stronger sunk-cost bias was linked to greater left-insula activity.^[11] This area also showed stronger connectivity with left lateral prefrontal areas during sunk-cost choices.^[11] Higher agreeableness (warm and cooperative) and conscientiousness (careful and dutiful) scores were associated with greater bias; in a statistical analysis, insula activity helped explain that link.^[11]

How should you read the meta-analysis's average effect? It is a moderate shift, not a trivial one, and an average rather than a fixed amount. Its size varies by task and design. Time worked in opposite directions: a delay reduced the effect in consumption choices but increased it in ongoing investment choices; older adults showed less bias in some tasks.^[13][22]

Animal studies add another angle. Mice, rats and people did the same kind of task: "Restaurant Row" for rodents and "WebSurf" for people.^[16] In each, the animal or person chose whether to wait for a reward.^[16] All three showed sunk-cost-like behaviour, and it built up only after they had committed to waiting, in the "wait zone", not while they weighed the offer.^[16] That suggests the commitment mechanism engages after the decision point, not before it.

This hints that the bias may not be only a human habit learned from culture. But these similar waiting patterns do not by themselves establish the same irrational mechanism in all three species.

An economic model offers one reason the habit might have lasted. This game theory model suggests a possible use for honouring sunk costs.^[12] It can act as a commitment device that guards long-term investments against passing temptation.^[12] This is a modelling proposal, not a measured fact. If it is right, the habit helped where long-term commitments paid, and it may help less in many modern choices.