Sunk Cost Fallacy
Continuing with a course of action because of resources already committed, rather than because of expected future returns.
How it is identified
Test: the decision to continue references money, time or effort already spent, which cannot be recovered by continuing
Unit
qualitative
In depth
The correct decision rule ignores sunk costs entirely: only future costs and benefits are relevant, because the past expenditure is gone whatever is decided next. In investing this appears as holding a loser because of what was paid, adding to it to justify the original decision, and staying with a strategy because of the effort spent developing it. The purchase price is the archetypal sunk cost — it is a fact about the investor's history and not about the security's prospects. The reframing that works is to ask whether you would buy the position today at today's price knowing what you now know.
Worked example
An investor down ₹4,00,000 holds on because selling would make the loss real. The ₹4,00,000 is already gone either way; the only live question is whether the remaining capital is better placed here or elsewhere.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Sunk Cost Fallacy” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.