What describes a sunk cost fallacy?

The sunk cost fallacy refers to the tendency to continue investing in a project or decision based on the amount of resources (time, money, effort) that have already been invested, rather than evaluating the current situation and potential future outcomes. When individuals or organizations fall into this fallacy, they might make decisions that are not in their best interest because they are overly focused on previous expenditures instead of the actual merit of continuing the investment.

In practical terms, this means that even if the future outlook for a project is poor, decision-makers might feel compelled to throw more resources into it simply because they have already invested so much. This behavior illustrates a flawed reasoning process where past costs, which cannot be recovered, incorrectly influence present and future decisions.

By understanding this fallacy, one can better assess decisions based on current data and potential future returns, rather than being skewed by prior losses or investments that can't be changed. This approach promotes more rational decision-making by encouraging focus on relevant information for future outcomes.