Slash Losses Fast by Ignoring Sunken Costs

The sunk cost fallacy grips us all: once you’ve poured resources into something, it feels impossible to let go. Psychologist Hal Arkes studied this and found that the more people invested—emotionally, financially, or reputationally—the harder it was for them to stop, even when returns plummeted. Imagine Raj, an app developer who dropped six months building a feature everyone said they wanted, only to see zero user engagement when it launched.

Most debates around persistence celebrate grit, but behavioral economics warns that stubbornly backing a failing venture simply compounds losses. Raj felt trapped—he’d already spent $20,000 and untold nights on that feature. Yet the data was clear: daily active users hovered at zero. He faced a choice: keep digging or cut his losses.

Arkes’s research suggests that setting pre-defined exit criteria—what I call the Swift Sword Rule—helps overcome our emotional inertia. Raj established a simple threshold: if feature adoption stayed below 500 users in 30 days, he would pivot. It stayed at 30. At day 31, he shelved the code and reallocated his team to the core product, which then saw a 25% uptick in engagement.

By ignoring sunk costs and focusing solely on future returns, Raj freed up time, money, and morale. That principle underlies countless savvy business turns: assessing only prospective benefits, not past investments, ensures you steer toward growth rather than a deeper hole.

You begin by listing investments—projects, partnerships, or habits—that have consumed your resources but yield little benefit. Then you judge each solely on future returns, not past costs, and set clear exit metrics like revenue targets or engagement numbers. When an item dips below your threshold, you swiftly cut ties and redirect effort to more promising ventures. This evidence-based approach, grounded in behavioral economics, ensures you don’t let emotional inertia dictate your strategy. Try defining one cut-off rule today.