What does sunk cost bias refer to?

Sunk cost bias refers to the phenomenon where individuals or organizations continue investing in a decision or project based on the resources—such as time, money, or effort—that have already been committed, rather than evaluating the future potential outcomes. This bias arises because people often feel a loss aversion to abandoning a project after having invested significant resources, leading them to make decisions that are not based on rational assessment of current circumstances or future benefits.

In this context, the focus is on how past investments unduly influence current decisions. Even when it may be clear that further investment is unlikely to yield positive results, the emotional attachment to the resources already committed can lead to a continuation of funding or support for failing initiatives.

Understanding sunk cost bias is crucial for effective management and leadership, as overcoming it requires a shift in focus toward future benefits and a rational evaluation of potential returns, rather than being hindered by previous expenditures.