Sunk cost

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{{economics}}{{logic}}
A '''sunk cost''' (also '''throwing good money after bad''') is the resources (such as money, manpower, or time) that have been expended on a project and cannot be recovered. In analyses of failed or failing projects, a common practice (the '''sunk cost fallacy''') is to allocate ''more'' resources (that might be effectively used elsewhere) solely because giving up would mean earlier efforts have been wasted.

While sunk cost commonly (but not always) refers to [[money]] or similar costs, an alternative, more general term is '''escalation of commitment''', which refers to the tendency of people and organisations to continue in the same direction, doing the same thing as before, even if it is clearly leading to failure.<ref name=wpescalation>{{wpa|Escalation of commitment}}</ref>

The fallacy is an [[informal fallacy]].

==Explanation==
Ignoring sunk costs and making decisions based on an analysis of likely future expenditures and potential successes will generally save money and resources in the long term by avoiding any additional expenditure on a project that is doomed to failure. From an economic point of view, what one has already invested is irrelevant to the decision of whether one should invest more. Either one expects a return on this new investment, or not. The earlier money is already spent, and should not enter into your decision.

There are other more general factors too. People may see their identity or status tied up with pursing a particular course of action; organisational factors may mean that pursuing a failing project to the end is judged less badly than admitting defeat and changing course (in military contexts, cowardice may be considered worse than a noble death). Continuing may also depend on a range of biases such as [[confirmation bias]], [[survivorship bias]], and other [[selection bias]]es that lead to people being mistaken about the true situation and believing that "one more push" will bring the desired outcome or a solution will appear if given a bit more time.<ref name=wpescalation/>

==Examples==
Arguments based on the need to justify sunk costs have been deployed in [[science|scientific]] and political circles, generally in circumstances where a group of true believers has already lost the debate but continues to seek funding in an attempt to pull something, or even anything, out of a failed project.

*"We must continue to fight the [[Vietnam War|war in Vietnam]], otherwise our soldiers will have died in vain."
*"I bought those dresses, and you are going to wear them!"<ref>Thaler, R. (2015) [https://books.google.com/books?id=xQedBAAAQBAJ&pg=PT77&lpg=PT77&dq=misbehaving+sunk+cost&source=bl&ots=c6GoSPvnN1&sig=y8zHdfHOcRZjyXxJxgwWRsNFhDg&hl=en&sa=X&ved=0ahUKEwiRqNu0ipzQAhXlyFQKHVRZAjYQ6AEIOTAF#v=onepage&q=sunk%20costs&f=false Misbehaving: The Making of Behavioral Economics]. ISBN 978-0-393-35279-5</ref>
*Numerous engineering megaprojects such as {{wpl|Concorde||,}} the {{wpl|Sydney Opera House||,}} the {{wpl|San Francisco–Oakland Bay Bridge||,}} and probably {{wpl|High Speed 2||,}} where national or regional prestige and political factors override business decisions.
*The tendency of people caught up in [[advance fee fraud]] to think "well, if I give this Nigerian fraudster a bit more money, I'm sure I'll eventually hit the jackpot".
*The [[War on Drugs]], where rationality comes up against morality: it clearly doesn't work, but admitting failure would mean totally reversing all the "drugs=evil" rhetoric, as well as putting millions of people out of work.

===War on terror===
A more emotive form of this reasoning figured strongly in American [[rhetoric]] on the [[war on terror]], which often framed any proposed drawback from [[Iraq]] or [[Afghanistan]] as dishonoring the memory of the soldiers who had died in those countries.

===International relations===
In [[international relations]], the term is used to describe resources that a state has put in an area in an effort to show a serious commitment. The permanent military infrastructure that the [[United States]] has built in [[South Korea]] is a sunk cost designed to show [[North Korea]] that the US has firmly committed to ensuring the region's stability.<ref>Thomas Schelling, <i>Strategy of Conflict</i></ref>

==See also==
*[[Life cycle assessment]]
*[[Strategic Defense Initiative]]

==External links==
*{{wpa|Sunk costs}}

==References==
{{reflist}}

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[[Category:Informal fallacies]]
[[Category:Economics]]

Categories: Informal fallacies, Economics