A sunk cost is an economic term used in business when a company has already spent money which cannot be recovered. A sunk cost is different from a future cost, or a prospective cost, which is a cost that may be avoided in the future if action is taken.

Sunk costs are no longer relevant, economics argue, to decision making as they cannot be recovered. However, when people make decisions they often account for their previous expenditure and factor that into their decisions regarding future spend, because of psychology.

The fallacy effect is that people tend to continue with their line of action, their investment, their decisions because they have previously invested so much into it. People literally ‘throw good money after bad’.