Why Britain and France kept paying for Concorde long after it made sense
By the time Concorde's economics had collapsed, London privately called it a commercial disaster that should never have begun. Yet both governments kept funding it. Economists now use the name Concorde fallacy for this trap: letting money already spent, which can never come back, steer decisions about the future.
A sunk cost is money, time or effort already spent and impossible to recover. Standard economics says it should play no part in what you do next, because it stays spent whichever option you choose. Only future, avoidable costs count; everything else is water under the bridge. Until you actually buy the cinema tickets, their price is still a live choice. After that, it is history.
A textbook case makes the logic concrete. Suppose $20 million has gone into a power plant that is unfinished and worth nothing as it stands. Finishing it costs another $10 million, while an equally useful alternative could be built for $5 million. The rational move is to walk away and build the cheaper plant, even though the original sum is lost entirely.
People, however, often do the opposite, a tendency known as the sunk cost fallacy or throwing good money after bad. Experiments by Rego, Arantes and Magalhães found that partners who had invested money and effort in a relationship were more inclined to keep it going. In the United States, utilities were slow to cancel unprofitable nuclear plants, and regulators later refused many of them even partial recovery of construction costs. Stress seems to sharpen the effect.
Sticking to a failing course has a close cousin in plan continuation bias, the urge to press on despite changing conditions. A 2004 NASA study found aircrews showed it in 9 of 19 accidents examined, and the tanker Torrey Canyon ran aground when its captain held a risky course rather than accept delay. There are exceptions: a manager with private knowledge that quitting would be worse can rationally persist even when outsiders cry fallacy.
Source: Sunk cost
