A cognitive fallacy is a piece of faulty reasoning — an error in logic produced by the systematic way our brains work, which is what makes us so reliably prone to it.
This one is the sunk cost fallacy, sometimes called the fallacy of irrecoverable cost. It consists of assigning value to something on the basis of the money, effort or time already invested in it, while discounting — to a greater or lesser degree — what it is actually worth now, or what it could be worth in future.
The result is that we lose still more money, effort and time going on with it.
The project is going under, but I can’t pull out now — I’ve put so much money and time into it.
That sentence, in one form or another, is the fallacy talking.
How it works
Take a relationship, or a project. It has a value in the present moment, and a potential value in future — some capacity to produce a benefit, or something good.
Under the sunk cost fallacy, a person partly or completely loses sight of both of those. Attention goes instead to everything already invested in the past — money, time, effort — and on the strength of that, a sentimental or emotional value gets attached to the thing itself.
This faulty appraisal means the person loses the present and future perspective on that relationship or project. So they keep investing money, time and effort into it, accumulating further losses, because they cannot bring themselves to abandon a toxic relationship or withdraw from a failed venture.
The correction
Which is why it matters to understand the nature of this reasoning, and to learn to separate the feeling of past cost from a true perception of present and potential future value.
The past investment is gone in every scenario. It is not recovered by continuing, and it is not increased by stopping — it is simply not one of the variables, however loudly it presents itself as one. The only question available to you is what happens from here.
Getting that separation clear allows for more decisive choices, and saves money, time and effort as a direct consequence.