Already invested, non-recoverable costs that should not influence future decisions.
Sunk costs are investments already made that cannot be recovered regardless of how the future unfolds. From a rational perspective, sunk costs should play no role in future decisions because they are irrevocable. In practice, however, they act as one of the strongest cognitive biases: people and organizations hold on to lost investments to avoid having made them “for nothing.”
The sunk cost trap appears in many contexts: a company continues investing in a failing project because 2 million euros have already been spent. A team clings to a technology decision because the transition was laborious, even though a better alternative exists. A manager defends a failed acquisition because they personally championed it. In all these cases, the decision should be made solely on the basis of future costs and returns, not on what has already been invested. The right question is: Would we start this project today if we could begin from scratch?
Sunk costs are closely linked to the concept of loss aversion described by Kahneman and Tversky. The organizational countermeasure is predefined kill criteria that decouple the termination decision from the past.
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