3 Examples To Understand Sunk Cost

3 min readMar 4, 2022

As a young company, finding success in an industry where legacy companies rule the market is an extremely difficult task. But SUGAR Cosmetics has shaken the cosmetics industry and given it a new look.

In conversation with its co-founders Vineeta Singh and Kaushik Mukherjee, we talk about how to minimize the risk of loss, fiscal responsibility is essential for managing personal and business finances. Money will occasionally be lost despite your best efforts, even when you act responsibly.

The reality is that certain costs will inevitably arise. Although it is essential to avoid them whenever possible, it is also necessary to deal with them if they occur.

What is Sunk Cost?

Here’s the deal with sunk costs. Sunk costs are payments or investments that have been made, and there is no way to recover them. So no consideration should be given to it in decisions. Due to the time spent developing strategies, businesses and organizations sometimes have difficulty abandoning them.
Theoretically, sunk costs do not affect future decisions. However, sunk costs can play a significant role in future decisions. This is primarily due to the psychological difficulty of letting go of previously committed resources, including time, effort, and money, even when their outcomes don’t meet expectations.
Nevertheless, sunk costs aren’t valuable for large companies when they decide whether to enter new markets or close factories. It is a principle that can be applied to everyday life, and understanding it can impact your decisions. Three ways to improve your day-to-day decision making with sunk cost-

1. Overeating

You ordered a terrible burger. It does not taste very good, but you eat it anyway since you already paid a lot for it. You didn’t realize that money would be paid whether you finished it or not. You often overeat during a buffet to make the most of the money you spent.
If you think of this as a sunk cost, you will still have to pay for dinner and dessert no matter how much you eat. When you are full or are not enjoying the meal, stop eating. Simple as that.

2. The Movie You Didn’t Like

You buy a movie ticket for INR 350. The movie is boring after watching it for a while. Even so, you continue to sit through the movie since you have already purchased the ticket.
We don’t realize that we aren’t refunded our money by watching the movie. On top of that, we waste time watching the movie. Don’t put yourself through something just because you have paid the price.

3. Toxic Relationships

A sunk cost fallacy in everyday life is not necessarily based on money, and some are based on time investment — for example, toxic relationships. Although two people are better off apart, they stick together because they have invested too much time in making this work.
Often, it is the reason people choose to stay in unhappy marriages. No one likes the idea of admitting that they made a mistake and wasted a significant period of their lives.

How To Avoid Sunk Cost Fallacy?

You may think it’s a good idea to ignore the investments you have already made, which is true. In reality, most people — even the most logical ones — succumb to this type of bias when faced with real-life situations.
Sunk cost fallacy leads us to make illogical decisions. We need to approach business and life differently to make clear-headed decisions.
In making decisions, costs and benefits should be considered in the present and the future — not in the past.

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