Sunk Cost Bias is Costing You
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Welcome to Mind Over Money, a weekly newsletter where I share actionable ideas to help you transform your relationship with money to build financial confidence and independence.
Today's topic: Sunk Cost Fallacy
Over a decade ago, I was a management consultant. For almost two years, my week had a rhythm: board a plane early Monday morning, fly to my client site, work long days, and return home late Thursday night. That routine meant one thing—I racked up serious status with United Airlines.
Fast forward to today: I no longer live that hectic lifestyle (thankfully). But guess what? I still fly United for most domestic trips, even when other airlines offer the same route for less. Why? Because I’ve built up so many perks with United that walking away feels like throwing years of investment out the window.
That’s the sunk cost fallacy at work. It is one of the most profitable tools in modern marketing, and it shows up everywhere.
Maybe you’ve kept a streaming subscription “just in case” you’ll watch again and you loathe giving up the well-tuned recommendation engine. Or you’ve held onto a gym membership, telling yourself you’ll go “next week” even though you haven’t set foot in months.
From coffee loyalty programs to credit cards, companies across industries rely on one simple truth: we humans hate the feeling of waste. The money and effort we’ve spent can hold us hostage, even when future value doesn’t justify it.
How Sunk Cost Works Against Us
The sunk cost fallacy is simple but powerful. Once we’ve put in money, time, or effort, we struggle to abandon it—even if it no longer serves us. Our psychology treats walking away as "wasteful," even though rationally, the past investment is gone no matter what we do in the future.
That psychological blind spot is exactly why marketers design systems to keep us hooked:
- Loyalty programs highlight “Member since 2010” or dangle available points, nudging us to keep spending or we risk "losing" the perks we've already earned.
- Movie and music subscriptions remind you how you would lose your personalized recommendations and curated playlists that you had spent time fine-tuning if you were to cancel.
- Apps and games track streaks and achievements so that abandoning feels like throwing away effort, not just time. If you are using Duolingo to learn a foreign language, you know that they are excellent at this!
Psychologist Daniel Kahneman showed why this is so effective: losses feel twice as painful as gains feel good. Which means the threat of losing something we already "own"—status, progress, perks—can override clear-headed decision-making.
Left unchecked, sunk cost thinking can quietly drain money, energy, and focus. But the good news is, you can outsmart the trap.
Three Ways to Break Free from Sunk Cost Thinking
Here are three strategies that shift decision-making back in your control:
1. Ask the Future-Value Question
Instead of mourning over how much you had already spent, ask, "What future value will I get if I keep this?”
Example: A $20/month subscription unused for three months isn’t worth keeping just because you've already spent an upfront cost to set it up. The only real question is: will you use it next month? If not, it's time to cut your losses.
2. Run a Switching Cost Audit
Companies bank on you overestimating how "hard" it is to switch.
Write down the real effort: How many hours will it take? What’s the actual cost? Often, it’s far less than the emotional weight you’ve attached to it.
3. Schedule Regular Subscription Check-Ins
Once a quarter, list every subscription, membership, or recurring payment.
Ask: "Am I using this right now? Does it bring future value?" Treat anniversary emails ("Congrats on 5 years with us!") as psychological nudges, not reasons to stay.
Final Thought
The sunk cost fallacy is one of the most human traps out there. We all hate to feel like we’ve wasted time or money. But when companies engineer entire systems around that bias, what looks like loyalty is often just inertia dressed up as "value."
Here’s the liberating truth: the money you’ve already spent is gone. The only decision that matters is whether the next dollar buys you something that truly serves you.
Next time you feel stuck, pause and ask: "Am I paying for the past, or choosing for my future?”
This is the 3rd in my Mind over Money series on consumer psychology. If you missed the first two issues, read it using the link below:
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