The Sunk Cost Fallacy is subtle but corrosive.

So how do we create space to challenge it? Economics or Emotion? And does it occur in fundraising?

Sometimes a thought takes hold and my brain runs wild, arguing both sides in what can only be described as an internal debate. Occasionally, it’s a sign I need to give things a rest, but sometimes, a nugget sticks.

Lately, it’s been the Sunk Cost Fallacy.

For those not neck-deep in economic theory, the Sunk Cost Fallacy (let’s call it SCF) is when people keep investing in something that clearly isn’t working, just because they’ve already sunk time, money, or energy into it. The idea of ‘wasting’ that effort becomes too uncomfortable to accept.

It’s fascinating, and familiar. We do it all the time. Not just with money, but with time, relationships, half-eaten dinners, even fuel in the car. The logic says, “cut your losses.” The emotion says, “don’t waste what you’ve already spent.”

SCF has been around for a while. Its roots go back to 19th and early 20th century economists like David Ricardo and Alfred Marshall, who laid the groundwork by emphasising rational decision-making. But it wasn’t until the 1970s that it really took shape, thanks to Barry M. Staw and later Daniel Kahneman and Amos Tversky, who showed just how emotional our decision-making can be. People don’t just fear loss, they actively avoid admitting it.

So, does this show up in fundraising? Absolutely.

I’ve seen it play out in endless data projects that go nowhere, roles people aren’t suited to (making them and their teams miserable), and budgets blown on repeated comms that never get a response. It’s not just bad decisions, it’s the inability to back out once we’ve started.

The Sunk Cost Fallacy is subtle but corrosive. So how do we create space to challenge it?

I think it starts at the top, with Trustees. They should be shaping a culture where it’s not only okay to admit something isn’t working, but encouraged. We need to normalise saying “this isn’t bringing value” without it being seen as mismanagement, bad decision making or failure. Like whistleblowing, raising a flag on SCF should be seen as constructive, not critical. After all, many decisions are made with good intentions and the best info available, they just don’t always go to plan.

I intend to keep raising awareness of this, because I suspect many avoid even thinking about it, it’s just too unpalatable. But I truly believe that if we want to evolve, we have to move away from a culture of finger-pointing and blame. Post-activity reviews that vaguely promise “learnings” without real clarity don’t help anyone. If we’ve had the courage to admit something isn’t working, let’s not get stuck dissecting a perceived failure, let’s move on.

And move on we shall.