Sunk cost: Know when to hold’em, know when to fold’em

By Bob  || December 7, 2025

The Thinking Game

I have been thinking about the topic of sunk costs for a while, but my inspiration for writing this blog came after watching a wonderful documentary, The Thinking Game. If you have any interest in science or AI, I strongly encourage you to take the time to watch it.

It’s a true story about the co-founder of DeepMind and the path that ultimately led to him winning the Nobel Prize in Chemistry for helping discover a revolutionary method to determine how proteins fold. I won’t give the story away, but rest assured: humanity will benefit greatly.

The documentary is a story of perseverance that led to arguably one of the most impactful scientific breakthroughs of our lifetimes. There is a segment where a Nobel laureate describes how the process of leading-edge science requires 80–90% failure, and that as the leader of his lab he feels roughly half of his job is to be an amateur psychologist-propping up morale in the face of so much failure. The ability to mentally process failure as a positive step toward achieving a goal is critical.

The importance of hard work…before we address “getting stuck”

Before switching to sunk costs, it is worth noting that I am a strong believer that hard work and perseverance are necessary ingredients to achieve meaningful goals. Half measures and a casual approach to achieving goals are not a winning strategy. However, hard work and perseverance don’t guarantee that your goals will be met. In some cases, people get “stuck” and don’t pivot when that may be the better decision.

A hard question

When do we recognize failure as a necessary step toward achieving long-term goals versus recognizing failure as a sunk cost and moving in another direction?

Yesterday’s costs, tomorrow’s choices

Let’s go in another direction. I watched an entire movie in a theater when the movie was disappointing. If this sounds familiar because “I already paid for the ticket,” you’ve met the sunk cost problem.

We do it with gym memberships, lousy investments, careers that stopped fitting years ago, and sometimes even relationships. We tell ourselves we’re being perseverant and “not a quitter,” when we’re just letting yesterday’s costs bully tomorrow’s choices.

The difference between Perserverance and Sunk Costs

This post is my attempt to write about the difference:

• When is perseverance the quiet superpower that gets you to a worthy goal? 

• And when is it just fancy packaging around a sunk cost? 

• And just as important: how do you walk away without beating yourself up or shrinking your sense of self-worth? 

Why walking away feels so hard

In plain English, a sunk cost is money, time, or emotional energy you’ve already spent and can’t get back.

Classical economics says sunk costs should be “water under the bridge.” Only future costs and future benefits should matter for today’s decision.

But real humans are not robots. Behavioral economists like Richard Thaler, Daniel Kahneman, and Amos Tversky who we have introduced in earlier posts have spent decades documenting how we do let sunk costs sway us:

Thaler’s work on mental accounting shows that we mentally “tag” money and effort, and we hate the idea of “wasting” what we’ve already put in.

Kahneman and Tversky’s research on loss aversion shows that losses hurt roughly twice as much as gains feel good. We’ll often keep throwing resources at a losing situation just to avoid admitting the loss.

So, you’ve fallen for sunk costs before, congratulations: you’re documented in the academic literature as a normal human.

Every one of us makes decisions based on the best information we have at the time. Regardless of new information, it’s emotionally very difficult to admit that a prior decision was, in hindsight, a mistake.

Perseverance vs. sunk-cost stubbornness

Perseverance and sunk cost thinking often travel the same road. The trick is noticing which fork in the road you’re following.

Perseverance sounds like:

“This is still the best path to my goal, even after updating the facts.”

“I knew it would be hard; the payoff still makes sense.”

“I’d choose this again today, starting from zero.”

Sunk-cost stubbornness sounds like:

“I can’t quit now; I’ve already spent so much.”

“What will people think if I walk away?”

“If I just hang on a little longer, I won’t have to admit it was a mistake.”

Those are very different stories.

When people are nudged to think explicitly about the future consequences instead of past investments, their sunk-cost bias shrinks. In some of the research, simple prompts and reframing significantly reduced people’s tendency to keep investing in failing projects.

The line between grit and sunk-cost stubbornness isn’t “never quit.” It’s:

Keep going when the future still justifies the effort. Quit when it doesn’t.

The poker table test: know when to hold ’em, know when to fold ’em

Kenny Rogers didn’t write a behavioral economics textbook, but he came close.

In the song “The Gambler,” the old pro tells the narrator that the real skill isn’t in any one hand. It’s in knowing which hands to play and which to walk away from.

That’s sunk costs in poker form:

The chips you’ve already put in the pot? Those are sunk costs.

The only rational question is: Given the cards I can see now, is putting more in still a good bet?

Good poker players don’t keep throwing chips in just because they’ve “already put so much in this hand.” They fold all the time. Folding is not a moral failure. It’s just part of a winning strategy.

Your career, your investments, your projects, they all have hands like this. You can’t control the cards that have already been dealt. You can control whether you keep pouring time, money, and emotional energy into a losing situation.

Sometimes the bravest, most financially responsible move is to push your chair back from the table.

The quiet damage: when sunk costs hit self-worth

Here’s where this gets personal.

Sunk-cost decisions aren’t just about spreadsheets. They’re often tangled up with identity:

“If I leave this career, what does that say about me?”

“If I sell this investment at a loss, I’m admitting I was wrong.”

“If I leave this relationship, it means I failed.”

So we protect our ego by protecting the story:

“I’m someone who finishes what I start.”

“I’m not the kind of person who quits.”

“I’m the one who can turn this around.”

Suddenly, walking away feels like erasing years of effort and declaring ourselves less worthy.

But here’s the truth I wish more people heard:

Your self-worth is not your project list.

You are not the house you decided not to remodel,

the investment you sold at a loss,

or the business you chose to shut down.

Annie Duke, a former professional poker player turned decision-science author, makes this point in her book Quit: The Power of Knowing When to Walk Away. She argues that our culture over-glorifies grit and under-values smart quitting, even when quitting is clearly the better decision. If reading the book is not your thing , there is a YouTube interview of Annie where she gives examples and discusses the contents of the book.

Recognizing sunk costs and moving on isn’t a character flaw. It’s a sign that your identity is anchored in something deeper than one outcome.

A simple sunk-cost checkup you can use in real life

Let’s make this practical. Next time you’re noodling with whether to stay the course or walk away, run through this checklist.

1. Name the sunk costs out loud   

Write them down:

“I’ve spent 3 years and $40,000 on this degree.”

“I’ve put 500 hours and $20,000 into this business.”

“We’ve put $50,000 into this remodel already.”

Seeing them on paper helps you separate past investments from future decisions.

2. Ask the “starting from zero” question  

If all that past effort and money vanished in a puff of smoke and you were starting today, would you choose this path again?

Different question, different answer:

“Given what I know now, would I put fresh money into this investment?”

“Would I enroll in this program today?”

“Would I start this business today, given its current prospects?”

If the honest answer is “no,” that’s a strong sign you’re being pulled by sunk costs instead of future value.

3. Shift from “prove myself” to “serve my goals”

Ask:

“Does continuing still serve my long-term goals — financial, health, family, values?”

“If I stopped today, what options would open up?”

People make better decisions when they frame choices around long-term goals and opportunity costs rather than just immediate pain.

4. Run the “best friend” test

Imagine your best friend came to you with your exact situation and numbers.

What would you tell them?

Most of us are far kinder and more rational with other people’s decisions than our own. We don’t tie their worth to a single project. We see their future more clearly than they do.

Use that clarity on yourself.

5. Protect your identity on purpose

Before you decide, rewrite the story:

From: “If I quit, I’m a failure.”

To: “If I quit, I’m someone who updates my beliefs when new information arrives.”

From: “Real adults don’t change course.”

To: “Real adults don’t let pride write their plan.”

Small mindset shifts and reframes can reduce sunk-cost bias and help people make cleaner, more forward-looking decisions.

Real-world examples: when to keep going, when to walk away

Example 1: The career that doesn’t fit anymore

You’ve spent 15 years building a career that… you’ve outgrown.

Maybe your interests changed. Maybe the industry did. Either way, you feel stuck because:

“I’ve invested too much to start over.”

“What would all that effort be for if I walk away now?”

Here’s the reframe: those 15 years still happened. You learned skills, built relationships, and paid your bills. None of that disappears if you pivot.

The question is: “What path gives my next 15 years the best chance of being meaningful and sustainable?”

Your past effort is part of your story, not your prison.

Example 2: The “noble” project

Maybe it’s a non-profit role, a side project helping others, or a dream you’ve talked about for years. The mission is noble. The reality is that it’s draining you financially and emotionally.

Letting it go feels like betraying your values.

But your values aren’t the same thing as this one expression of those values.

You’re allowed to say:

“This mattered. It still matters. But this particular path is no longer the best way for me to live those values.”

You might step back, restructure, or hand the baton to someone else. That’s not cowardice. That’s stewardship of your time, money, health, and family.

How knowing about sunk costs actually improves decisions

It’s not enough to know the term “sunk cost fallacy.” The question is: does that knowledge actually change behavior?

In other words, this isn’t just an interesting label. It’s a very practical lens:

It helps you pause before throwing more money at a bad idea.

It helps you exit sooner from projects that no longer make sense.

It helps you separate your self-worth from any one decision.

That’s the real win.

Betting on your future

If you take nothing else from this, take this poker-table question into your next big decision:

“Knowing what I know today, if I weren’t already in this hand,

would I choose to put more chips in?”

If the answer is no, you’re not a failure for folding. You’re a person who understands sunk costs.

Perseverance still matters a lot. Most of life’s worthwhile goals such as getting out of debt, finishing a degree, earning respect from co-workers, staying married through a hard season-require long, unglamorous consistency.

Perseverance is about sticking with good bets, not resuscitating bad ones.

So give yourself permission to:

Honor the effort you’ve already put in.

Learn what you can from what didn’t work.

Then, when the time is right, stand up from the table and carry your experience- not your regrets- into the next hand.

That’s not quitting on yourself. That’s betting on your future.