![]() ![]() Let’s say you purchased a new car but a few months into owning it, you realize that not only is it a gas guzzler, it is also prone to breaking down. The same thing can happen with houses, cars, and other big purchases. ![]() But because you’ve already invested so much of your time in the relationship, you find it difficult to let go, even if it is no longer healthy for you. While initially, the relationship was a healthy one, four years down the line you realize that the two of you do not share the same ideals, which has led to a lot of arguments. You are in a long-term relationship with someone. Here’s an example of a sunk cost fallacy. The fallacy comes into play when we make decisions based on sunk costs. The sunk cost fallacy is a way of thinking that occurs when we believe that we have invested so much in something that we must see it through to the end, regardless of whether or not it is actually in our best interest. Sunk cost is a very real occurrence that can have lasting effects on our finances. In business, sunk costs are often used to refer to the cost of a project or venture that has already been made, regardless of whether or not it generates any returns. A sunk cost is a cost that has already been incurred and cannot be recovered. What is sunk cost?įirst, we need to discuss the definition of a sunk cost. Let’s discuss what the sunk cost fallacy is, why it's so easy to fall into it, and how to avoid it. This is called the sunk cost fallacy, and it's a very common psychological trap. Do you ever feel like you're stuck in a situation because you've already invested so much time or money into it, so you think it’s just better to stick with it to the end? You're not alone. ![]()
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