In business, decision making is perceived as something which should be rational. This is especially the case when it comes to costs.

When making a decision related to costs, the idea of a rational decision implies that only the costs related to that decision should be considered. That is only if the costs which will change depending on that decision.

This leaves all those costs out, which relate to payments or investments made in the past which cannot be recovered. A cost that has already occurred and cannot be recovered is called sunk cost.

Dealing with sunk cost is challenging as they are often seen as of value because of the investment already made. The sunk cost fallacy describes it as an ongoing investment because of the initial investment. It’s, for example, reading a book we find boring because we bought it. Or eating the whole menu even if it is too much because it has been paid for.

It is true that following the sunk cost fallacy isn’t rational according to the visible costs. What is often overlooked is the cost of dealing with the emotional aspects of the decision.

As a kid, I was taught to eat everything which was on the plate. It’s something I learned so well, that I still struggle with this nowadays. Eating up isn’t related to the cost I can see on the bill, it’s related to a principle I learned and the values I have. Failing that principle I learned and follow implies emotional costs. As long as I don’t make myself aware of these I cannot make a rational decision, one that considers the costs of not following my principles or not living up to my values.