Every senior decision-maker knows the meeting: a project is over budget, the forecasts keep slipping, and someone says, “We’ve already put too much into this to stop now.” Behavioural science has a name for that sentence. It is the sunk-cost effect, and the evidence suggests it is neither rare nor a sign of weak intellect. It is a deeply rooted tendency, and it survives even when the numbers are on the table.
Does full information protect us from doubling down?
One might expect transparency to solve the problem. If decision-makers can see the alternatives and the expected returns, surely they will cut their losses. An experiment by Karlsson, Gärling and Bonini tested exactly that. Undergraduates were given fictitious investment problems with sunk costs, together with full information about alternative investments and estimates of future returns. They escalated anyway. The authors concluded that people may continue investing despite knowing it will not make them economically better off, and that the reasons for escalation are partly non-economic (Karlsson et al., 2005).
The limitation matters: these were students facing hypothetical money, not executives facing real careers. But the direction of the finding is uncomfortable for anyone who believes a better dashboard is the cure.
Knowing the numbers is not the same as being free to walk away — Photo: Vic Lee / Pexels
Is the bias about our own money, or anyone’s?
For leaders who manage other people’s capital, the most striking study is Olivola’s. Across eight experiments with 6,076 participants, people altered their choices in response to costs that someone else had already paid. The effect was not reduced by social closeness, and it did not depend on whether the other people would see their investment being “honoured” (Olivola, 2018). In plain terms, the pull of past investment is not only personal pride. It extends to money that was never ours.
A registered, high-powered replication with 821 online participants adds nuance. It confirmed differences between sunk money and sunk time in one study, but in another found sunk-cost effects for both money and time (Petrov et al., 2023). For organisations, that means months of a team’s effort can anchor a decision as strongly as the budget line.
Why is the habit so hard to break?
Part of the answer may be older than finance. In foraging tasks, mice, rats and humans show similar escalation from sunk costs when deciding whether to quit an ongoing countdown to a reward. A cross-species analysis found these choices are change-of-mind decisions that weigh both the time already spent and the time remaining, and that sensitivity depends on what information the decision-maker is given (Redish et al., 2022).
Psychoanalysis offers a complementary lens. In Beyond the Pleasure Principle, Freud described the compulsion to repeat: the tendency to return to the same painful situations rather than remember and work through them (Freud, 1920, SE vol. 18). Seen this way, the failing project is not only a spreadsheet problem. It can become a stage on which a leader keeps replaying an older question about being right, being enough, or not being the one who gave up.
The hardest stop-or-continue calls deserve a clear head, not the end of a crisis week — Photo: Andrea Piacquadio / Pexels
What can a leadership team do differently?
The research points to structure rather than willpower. Since information about time spent and time remaining shapes the re-evaluation, the framing of a review meeting matters: discuss only the remaining cost and the remaining benefit, and ask what the team would decide if it were inheriting the project today. Because the bias extends to other people’s investments, a reviewer who did not sponsor the original decision is valuable.
In clinical work with senior professionals, specialists often observe that the decisive moment is not intellectual. The leader already knows the numbers. What changes the decision is the permission to separate an old investment from present self-worth.
Karlsson N, Gärling T, Bonini N. Escalation of commitment with transparent future outcomes. Exp Psychol. 2005;52(1):67-73. PMID: 15779532. DOI: 10.1027/1618-3169.52.1.67
Petrov NB, Chan YKM, Lau CN, et al. Sunk cost effects for time versus money: replication and extensions Registered Report of Soman (2001). Int Rev Soc Psychol. 2023;36:17. PMID: 40951812. DOI: 10.5334/irsp.883
Redish AD, Abram SV, Cunningham PJ, et al. Sunk cost sensitivity during change-of-mind decisions is informed by both the spent and remaining costs. Commun Biol. 2022;5(1):1337. PMID: 36474069. DOI: 10.1038/s42003-022-04235-6
Freud S. Beyond the Pleasure Principle (1920). In: Strachey J, ed. The Standard Edition of the Complete Psychological Works of Sigmund Freud, Vol. 18. London: Hogarth Press.
Image Credits
Featured image: AI-generated (Gemini 3.1 Flash via OpenRouter). In-text images: Vic Lee / Pexels; Andrea Piacquadio / Pexels (Pexels licence). No real person is identified.
