A few years ago, I held onto a coffee business for longer than the numbers justified.

By the end, I knew what the spreadsheet was telling me. I just did not want to hear it. Shutting the doors would have meant admitting that a year and a half of work and stress had come to nothing. So I kept hoping for the month that would turn it around. It did not come, and it took me a long time to make peace with that.

What I did not have a name for at the time is one of the most reliable traps in human decision-making. It is called the sunk cost fallacy, and once you see it, you see it everywhere.

I am not a psychologist or an economist. This is a piece of reading and reflection on a well-studied bias, not advice, and the studies here are findings from particular groups, not settled rules about how everyone behaves.

What the sunk cost fallacy actually is

The cleanest definition I have found comes from Carlos Alós-Ferrer, a professor of economics at Lancaster University. He puts it this way: “The sunk cost fallacy occurs when we use money, time, or effort we’ve already spent (and can’t recover) as justification to keep investing in something that’s clearly not working.”

Psychologists Hal Arkes and Catherine Blumer described the effect in a 1985 paper as “greater tendency to continue an endeavor once an investment in money, effort, or time has been made”.

My favorite illustration comes from economist Richard Thaler. He wrote: “A man joins a tennis club and pays a $300 yearly membership fee. After two weeks of playing he develops a tennis elbow. He continues to play (in pain) saying ‘I don’t want to waste the $300!'”

The $300 is gone whether he plays or not. Playing in pain does not bring it back. It just adds pain to the loss. And yet I recognize the logic, because it is exactly the logic I ran on the coffee shop.

Why does it grip us so hard?

Part of it may be loss aversion. Alós-Ferrer puts it plainly: “Our brains are wired to feel losses more intensely than gains of the same size.” The idea fits my experience. Closing the business did not feel like a neutral accounting decision. It felt like a loss I had to walk toward on purpose.

The view from the outside versus the inside

This bias can be almost invisible from the inside and glaringly obvious from the outside.

I saw that gap in the time I spent around venture investing. I watched founders cling to startups that plainly were not working, long past the point where a stranger would have called it.

From where I sat at that time, walking away looked easy, logical even. But I was not the one who had spent two years of my life and reputation on the thing. The person who paid the cost may be the person least able to see it as already gone.

There is even a hint that the pull runs deeper than human ego. A 2018 study published in Science found similar sensitivity to time already invested in mice, rats, and humans performing parallel reward-waiting tasks. It does not prove that every species shares the same bias, but it raises the possibility that reluctance to quit rests on mechanisms older than human self-justification.

How I try to catch it now

The question that helps me most is blunt. If I were starting fresh today, with none of this behind me, would I choose to put money into this now? Not “have I already spent a lot,” but “would I begin this from zero?” The honest answer usually arrives fast, and it is often different from the answer my sunk costs were whispering.

The trick is to treat the money and the year and a half as already gone, because they are. They are not a reason to continue. The only cost you can still make a decision about is the next one.

Even knowing all of this, the coffee business still sometimes feels like a year and a half wasted when I let myself think about it. That feeling has not fully gone. What has changed is that I no longer treat it as a bill still owed. It is spent. The next decision is the only one I actually get to make.

If a decision like this is weighing heavily on you, whether it is a business, a job, or something more personal, talking it through with a counsellor or someone you trust may be worth more than any framework.