Sunk cost
A sunk cost is a past expense that cannot be recovered and should not influence forward-looking decisions.
Money already spent and impossible to recover should, logically, have no bearing on what you do next. Almost everyone finds that almost impossible.
A sunk cost is an expense that has already been incurred and cannot be recovered, whatever you decide to do next. Because it cannot be changed by any future choice, sound decision-making ignores it: only costs and benefits that lie ahead should weigh on a decision.
Why it should be irrelevant
The logic is airtight and uncomfortable. A rational choice compares the future consequences of the options available now. A cost that is gone regardless of which option you pick cannot distinguish between them, so it carries no information for the decision. Whether to continue a project, keep a holding, or finish a tedious film should depend on the future value of each course, not on what has already been spent or endured.
The fallacy that follows
Despite this, people routinely let sunk costs drive decisions, the sunk cost fallacy. Having invested heavily, they continue a failing course to avoid feeling the investment was wasted, throwing good money after bad. Governments persist with doomed projects because so much has already been spent; individuals stay in unrewarding commitments for the years already given. The waste already suffered is used to justify suffering more.
Why we cannot let go
The pull of sunk costs is rooted in psychology, especially loss aversion and the wish not to admit a mistake. Writing off a sunk investment forces acknowledgement that the money or effort is gone, which feels like accepting a loss, and people will take poor forward-looking decisions to postpone that feeling. Recognising this is the first defence; the second is to ask, deliberately, what one would choose if starting fresh today, with the sunk cost already gone.
The sunk cost is a small idea with large consequences, because the discipline it demands, judging only by the future, runs against deep instinct. The decisions people most regret are often those where they let what was already lost dictate what they lost next.