Sunk Cost Fallacy

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Provenance

Where it was first filed

Hal R. Arkes & Catherine Blumer, 1985 — The Psychology of Sunk Cost. Arkes & Blumer coined and experimentally established the 'sunk cost effect' through a series of vignette and field studies. The closely related organizational phenomenon, escalation of commitment, was pioneered by Barry Staw's 1976 'Knee-deep in the Big Muddy' (the title alludes to the Vietnam War). In behavioral ecology the same idea is called the 'Concorde fallacy,' a term introduced in Dawkins & Carlisle (1976), Nature, who used it to critique applying prior parental investment to current decisions.

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Tested variation 1

Theater season-ticket field experiment (Arkes & Blumer 1985, Exp. 2)

Full-price buyers attended more plays in the first half of the season than discounted buyers, consistent with larger sunk costs driving greater consumption.

Hal R. Arkes & Catherine Blumer, 1985 · yield First-half mean attendance: no-discount 4.11 (n=18) vs $2-discount 3.32 (n=19) vs $7-discount 3.29 (n=17), p<.05; the difference faded by the second half (no clean standardized effect size reported). · ~54 season-ticket purchasers across three groups

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Tested variation 2

Ski-trip vignette (Arkes & Blumer 1985)

A majority chose the more expensive Michigan trip despite expecting to enjoy it less, choosing on the basis of the larger sunk cost.

Hal R. Arkes & Catherine Blumer, 1985 · yield about 54% chose the more expensive, less-preferred option (as reported in the paper) · undergraduate respondents (vignette sample)

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Tested variation 3

Escalation under personal responsibility (Staw 1976)

Participants allocated the most additional money to a previously chosen, failing course of action when they were personally responsible for the prior negative outcome (self-justification).

Barry M. Staw, 1976 · yield not reported as a standardized effect size (significant interaction of responsibility x outcome on amount allocated) · 240 business-school students

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Tested variation 4

Registered-report replication of Soman (2001), time vs money

Mixed support: the ticket sunk-cost effect (Study 1) replicated but weaker; the predicted time-vs-money asymmetry did not consistently hold (Study 2 showed both sunk time and sunk money effects).

Petrov, N. B. et al., 2023 · yield Study 1 phi_c = .38 [.31,.45] (original .61); Study 2 money phi_c = .23 (original .32); Study 2 time phi_c = .32 (original ~.02) · 821 participants passing exclusions

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Method

How the judgment forms

The dominant account from Arkes & Blumer and Arkes & Ayton is that the sunk cost effect is the over-application of a generally adaptive 'do not waste' heuristic: prior expenditure is treated as a reason to continue so as not to appear (to oneself or others) wasteful, even when the spent resources are irrecoverable and irrelevant to the forward-looking decision. Complementary accounts emphasize loss aversion / prospect theory (abandoning makes the prior loss feel realized), self-justification and the desire to avoid admitting a past decision was mistaken (central in Staw's escalation work), and reputational/impression-management concerns.

Arkes & Ayton (1999) argue the 'fallacy' is uniquely human and learned, since there is no unambiguous evidence that animals or young children commit it, contradicting a pure prospect-theory/loss-aversion account that should generalize across species. A 2025 reliability study (Bialek & Biesiada) goes further, suggesting different vignettes tap distinct processes (loss aversion, commitment/consistency, social signaling) rather than a single 'sunk cost' construct.

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On record

Documented in the wild

• Concorde supersonic airliner program · 1962-2003

  The British and French governments continued joint funding of the Concorde for years after it was clear it would never be commercially viable, in part because abandoning it would mean admitting the already-spent funds were wasted; the case is so emblematic that 'Concorde fallacy' became a synonym for sunk cost in the literature. The naming of the bias after Concorde traces to Dawkins & Carlisle (1976).

• U.S. escalation in the Vietnam War · 1965-1973

  Continued U.S. commitment to the Vietnam War despite mounting costs has been widely cited (including via Staw's escalation-of-commitment framework, whose seminal paper title alludes to the war) as the prototypical real-world sunk cost / escalation case: prior expenditure of lives and money was used as a reason not to disengage.