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What is Sunk Cost Fallacy?

Finance

In plain English: 'I already spent $400 on this product' is not a reason to spend $100 more. The $400 is gone either way.

Continuing to invest in a failing product test because of money already spent, "I've put $400 into this, I can't quit now." The correct decision framework only looks at expected future returns, not past losses.

Why it matters: The sunk cost fallacy is responsible for more sustained losses in ecom testing than any single tactical mistake. It causes operators to spend $300 validating a product that failed its $200 evaluation threshold.

Framing kill decisions as "wasting what I've already spent." The correct framing: "Given what I now know, is additional investment likely to be profitable?" If no, kill. The past spend is gone either way.

Learn this in practice → Cash Flow Basics

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