The price of having already paid

Imagine buying a nonrefundable ticket to a concert. That evening, rain begins, and staying home seems more enjoyable. Nevertheless, you feel that you should attend because otherwise the ticket money will have been wasted. This reaction illustrates the sunk-cost effect.

A sunk cost is a past expenditure that cannot be recovered. The ticket price is such a cost: attending the concert will not return it, and staying home will not increase it. For the present decision, the relevant comparison is between the benefits and additional costs of going and those of remaining at home.

People often resist this logic because abandoning a purchase can feel like admitting a mistake. Continuing allows them to believe that the earlier spending still serves a purpose. Yet an unpleasant evening does not repair the expense; it adds another cost to it.

The distinction also applies to larger projects. Money already spent developing a product can create pressure to continue, even when the remaining work is unlikely to be worthwhile. This does not mean unfinished projects should routinely be abandoned. A project with promising future benefits may deserve further support. The important separation is between reasons concerning what comes next and discomfort about what has already happened.