Sunk Cost
Money, time or effort that cannot be recovered should not decide what you do next. Compare the future from where you stand now.
Do not keep paying for yesterday's decision when tomorrow no longer justifies it.
If I had not already invested in this, would I choose it today?
Projects, investments, products, subscriptions, hiring and strategic commitments.
Fast overview
A sunk cost is a cost already incurred that cannot be recovered. Because it stays the same whichever option you choose now, it should not determine the current decision.
Useful for learning, not for choosing between today's alternatives.
Costs and benefits that differ depending on what you do next.
Continuing can still be the best choice, but only when future benefits justify future costs better than the alternatives.
Mental Model Compass
Learn it progressively
1. Reset the decision point
Stand at today. What choice remains?
2. Separate past from future
Mark unrecoverable spending as sunk. Keep future costs that differ between options.
3. Compare alternatives
Evaluate continuing, changing course and stopping based on what each produces from now forward.
4. Check the psychology
Pride, consistency and avoiding admission of error can make past investment feel relevant.
5. Keep the lesson, release the cost
Past spending can teach you something. It cannot be recovered by spending more unless the new spending is independently worthwhile.
See it in practice
Product
A company spent ₱8 million building a product. That alone is not a reason to spend another ₱3 million. The next ₱3 million needs its own case.
Time
Finishing a poor course because you already completed 80% may waste the remaining hours if a better use now exists.
Technology
Years invested in an old system do not prove it should remain. Compare future migration costs with future costs and benefits of keeping it.
Worked application
Continue a struggling software project?
Already spent: ₱6 million. It cannot be recovered, so it is sunk.
Option A: Spend another ₱2 million to finish, with uncertain adoption.
Option B: Stop and redirect the team to a smaller project with stronger evidence of demand.
Relevant analysis: Compare future spending, expected benefits, timing, team capacity and opportunity cost.
Key insight: "We cannot waste the ₱6 million" is not a valid reason to continue. It is already gone under either choice.
A useful reset question
Imagine the commitment appeared on your desk today exactly as it is, but someone else made every earlier decision. Would you invest the next dollar, hour or month?
Common mistakes
Stopping automatically
Sunk costs do not mean a project is bad. Continue when future benefits still exceed relevant future costs and alternatives.
Ignoring exit costs
Cancellation fees, severance and migration costs can be relevant if today's choice changes them.
Trying to recover the unrecoverable
More spending does not reverse a sunk cost. New spending needs a forward-looking justification.
Confusing sunk cost with opportunity cost
Sunk cost looks backward at unrecoverable resources. Opportunity cost looks at the best alternative forgone.
When not to use it
Do not use the model to erase history that still affects future outcomes. Reputation, contractual obligations, learning, switching costs and recoverable asset values can remain relevant. The test is whether they can still change the consequences of today's alternatives.
Related mental models
Opportunity Cost
After removing sunk costs, compare the best future alternatives competing for the same resources.
Expected Value
Compare uncertain future outcomes without letting past spending distort the calculation.
Margin of Safety
When continuing, leave room for forecasts and assumptions to be wrong.