Economics Cognitive Biases Questions
The sunk cost fallacy refers to the tendency of individuals to continue investing in a project or decision based on the resources (time, money, effort) they have already committed, even when the future benefits are unlikely or non-existent. It affects economic decision-making by leading individuals to make irrational choices, as they prioritize recouping their past investments rather than considering the potential future costs and benefits. This bias can result in inefficient resource allocation, missed opportunities, and overall poor decision-making.