The sunk cost fallacy is a cognitive bias that occurs when an individual makes a decision based on the money, time, or resources that have already been invested in a project, rather than evaluating the current and future potential of that project.

This can lead to irrational decision-making, as the individual may continue to invest in a project that is unlikely to be successful simply because they have already invested a significant amount of resources into it.

For example, imagine a person who has invested a significant amount of money into a business venture that is not performing well. Despite the poor performance, they may continue to invest more money into the venture because they have already invested so much and they feel that they cannot give up on it. This is an example of the sunk cost fallacy, as the person is basing their decision on the money that has already been invested rather than evaluating the potential for future success.

Sunk cost fallacy can also be seen in many personal and professional scenarios like continuing to invest in a failing relationship or a project which have no more chance of success. It is important to remember that the resources that have already been invested are gone and cannot be recovered, and that the decision should be based on the potential for future success rather than the resources that have already been invested. It’s important to keep in mind that past investment should not cloud judgment and should not be considered while making the decision.

In summary, the sunk cost fallacy is a cognitive bias that occurs when individuals make decisions based on the resources that have already been invested, rather than evaluating the potential for future success. This can lead to irrational decision-making and can result in the continued investment in projects that are unlikely to be successful.