Modern finance · 1950s–1990s
1985
The sunk cost effect
Psychologists show people keep investing just because they already have.
In 1985 Hal Arkes and Catherine Blumer showed in experiments that people stick with a choice because of what they've already spent, even when it no longer makes sense.
💡 Why it made sense then
Economics said past costs shouldn't matter; psychology showed they often do.
Ideas it gave us
- ⚖️ Sunk cost
A sunk cost is money or effort already spent that can't be recovered. The sunk cost fallacy is letting it drive future decisions, which should depend only on future costs and benefits.
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