Definition
Past spend or effort locks a trader into positions despite deteriorating odds.
Example
A trader continues adding to a failing thematic equity basket because months of prior research and accumulated position size make the idea feel "too invested to abandon." The original objective is forgotten; capital is deployed to protect effort rather than maximise returns.
Cognitive Driver
The mind resists acknowledging that prior investment--time, analysis, stress, transaction costs--has no bearing on future outcomes. Abandoning the trade feels like admitting that effort was wasted. This emotional cost becomes misinterpreted as an economic justification to continue.
Market Expression
Positions are defended not because the thesis still holds but because exiting would invalidate prior work. Additional capital is allocated to salvage underwater positions. Trade reviews focus on how much has been spent, not what the forward distribution looks like.
Trigger Conditions
- Long research cycles or high-commitment thematic ideas
- Complex trades requiring significant upfront analysis
- Large P&L swings tied to reputational or identity investment
- Extended holding periods where the position becomes familiar
- Situations where abandoning the trade feels like admitting defeat
Diagnostic Markers
- Rationale heavily references past effort, not current data
- Adding risk to losers to "justify the work already done"
- Emotional discomfort around exiting despite thesis break
- Frequent mentions of "not wanting the research to go to waste"
- Forward-looking arguments replaced by retrospective justification
Cost Profile
- Capital trapped in low-expected-value positions
- Growing exposure to deteriorating themes
- Opportunity cost from failing to rotate into better trades
- Rising drawdowns as old commitments dictate new risk
- Strategic drift as decisions are anchored to historical effort
Differentiation From Adjacent Biases
- Not loss aversion: sunk-cost is about past investment; loss aversion is about the pain of realised losses.
- Not confirmation bias: sunk-cost defends effort; confirmation defends narratives.
- Not anchoring: sunk-cost attaches to past commitment, not to a specific number.
Corrective Lens
Reset each position to zero by asking: "If I had no exposure today, would I open this trade at this size?" Require every review to articulate updated expected value, independent of past effort. Use objective scorecards to reinforce that prior costs are irrelevant to forward decisions.