Sunk Cost

Economists explain this behavior using a concept known as the "sunk cost fallacy": when estimating the value of a future investment, we have trouble ignoring what we've already invested in the last. Sunk costs are part of the story, but new research shows that other factors matter more. To figure out why and when escalation of commitment happens, researchers at Michigan State University analyzed 166 different studies. Sunk costs do have a small effect--decision makers are biased in favor of their previous investments--but three other factors are more powerful. One is anticipated regret: will I be sorry that I didn't give this another chance? The second is project completion: if I keep investing, I can finish the project. But the single most powerful factor is ego threat: if I don't keep investing, I'll look and feel like a fool. In response to ego threat, people invest more, hoping to turn the project into a success so that they can prove to others--and themselves--that they were right all along.