The sunk cost fallacy

Trader's Glossary · Psychology

Definition. The tendency to keep going with something just because time, money or effort has already been invested in it, even though the future benefits don't justify it.

How it works

Arkes and Blumer (1985), among others, described the phenomenon. Costs already incurred are irreversible, but emotionally they're hard to “let go”.

Example

A trader sticks with a method that hasn't worked for a long time because they've spent hundreds of hours on it, or stays in a position “because I've already lost so much on it”.

What to watch out for

It's worth judging decisions from today's perspective: would I make this decision now if I were starting from scratch?

More in Hetman Capital Club

You'll find the full explanation with graphics, examples and exercises in the 🧘 Trader's body and mind space, and its use in the live market in the 🔴 Live Room. Both are available to Club members (in Polish).

Educational content, not investment advice.

Full article in the Atlas of biases: what this bias looks like in trading, an example and the research.