As leaders, we’re expected to persevere, push through obstacles, and see commitments through. But what happens when that perseverance becomes a liability?
Enter the sunk cost fallacy—a cognitive bias where we continue investing time, money, or effort into something simply because we’ve already invested so much. It shows up in clinging to underperforming projects, holding onto strategies that no longer serve, or resisting change out of pride or fear.
The problem? Every additional resource poured into a failing initiative increases the cost of not letting go. Leaders risk chasing losses instead of creating value.
Great leadership isn’t about blind loyalty to past decisions—it’s about the courage to pivot. The best leaders assess with fresh eyes, not clouded by history. They ask:
-
“If I hadn’t already invested in this, would I still pursue it today?”
-
“Are we staying the course because it’s right—or because it’s hard to admit it’s wrong?”
-
“What do my team and organization stand to gain if we redirect our energy?”
The sunk cost fallacy can quietly sabotage team decisions by anchoring them to the past instead of guiding them toward the best future outcome. Here’s how it tends to play out in group settings:
1. Escalation of Commitment
Teams often double down on failing projects because they’ve already invested time, money, or effort. This can lead to “throwing good money after bad,” where continuing feels safer than admitting a misstep.
2. Groupthink and Peer Pressure
When one or more team members are emotionally or professionally invested in a decision, others may hesitate to challenge it—even if the evidence suggests a change is needed. The desire to maintain harmony can override rational analysis.
3. Fear of Accountability
Admitting a sunk cost means acknowledging a mistake. Teams may avoid this to protect reputations or avoid blame, especially in high-stakes environments.
4. Loss Aversion
Psychologically, losses loom larger than gains. Teams may irrationally cling to past investments to avoid the emotional discomfort of “wasting” resources, even if cutting losses would be the smarter move.
5. Delayed Innovation
By sticking with outdated tools, strategies, or products simply because they’ve already been paid for, teams can miss opportunities to innovate or pivot to better solutions.
To counteract this, teams can:
-
Set clear exit criteria before starting projects.
-
Regularly review decisions with fresh eyes.
-
Encourage a culture where changing course is seen as smart, not shameful.
It’s not about failure; it’s about learning and evolving. By recognizing the sunk cost fallacy, leaders can make smarter, more future-focused decisions—and model adaptive thinking for their teams.
In an age of fast change, clinging to the past is costlier than ever. Let’s normalize letting go.