Cost

A Cost is anything that you had to give up in order to attain something you wanted more. This could be Money, Time, or even a Good that you traded away.

Sunk Cost

Some costs cannot be recuperated, these are sunk costs.

These include time, energy, and even some goods, like tickets for a show or a sports event.

Rational Decision Making

Therefore, when making a completely rational decision, you should ignore these costs, and only look ahead. These Costs don't really influence your current options.

Example

If you bought tickets to a movie and, in the middle of watching it, you find yourself not liking it at all and realizing that the best decision would have been not to buy the ticket at all, you should just get up and leave, in order to not waste your time as well!

The Fallacy

The problem is that humans, with our complex psychology, sometimes think that, if we leave in the middle of the movie, then we're wasting the ticket money.

We might not Cut our Losses because we think that we're past the point of no return and, as such, our best decision is to just continue doing what we're doing, even if we're just wasting our time or money!

Fighting the Fallacy

In order to combat this flawed way of thinking, you have to identify the Sunk Costs and don't let them interfere with your next decision.

Learn with them, but don't use "I've already invested so much" as an excuse and evaluate every decision without bias!

Conclusion

This is extremely important in our everyday lives, but more so when investing or making decisions that involve money!

have you ever justified your actions using this Fallacy? If so, leave your example in the comments, in order to warn others!

Thanks for reading!
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Take a look at my last post, about another Human Picological quirk:

• Tragedy of The Commons - What is it? Is it even a problem?

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