TB: Sunk Cost Fallacy

Continuing an investment (time, money, effort) because of what has already been spent, rather than because of future expected returns. Sunk costs are gone regardless of what you do next — they should play no role in forward-looking decisions. Only future costs and benefits are decision-relevant.

The sunk cost fallacy is one of the most pervasive and costly cognitive biases. It drives people to throw good money after bad, stay in failing projects or relationships, and resist strategic pivots. The psychological root is loss aversion: abandoning a failed investment forces you to consciously register a loss, so the mind generates reasons to continue rather than admit failure. Recognizing sunk costs as irrelevant is an act of rational discipline that consistently improves decisions.

• Seeking Wisdom (Bevelin): sunk costs as a named cognitive error; Bevelin catalogs it alongside other Munger-style thinking mistakes — the pattern is escalating commitment to avoid admitting a mistake
• Poor Charlie's Almanack (Munger): Munger's warning about "twaddle" — continuing bad investments because "we've come so far"; the checklist approach explicitly demands asking "if I didn't own this today, would I buy it?"

• Second-Order Thinking — asking "and then what?" prevents sunk-cost entrenchment
• Inversion — "what would guarantee I keep wasting money here?" surfaces the sunk-cost trap