Which term is used for continuing a project due to past investments, even when future prospects are poor?

Which term is used for continuing a project due to past investments, even when future prospects are poor?

• A. Sunk cost
• B. Emotional investment
• C. Sunk cost fallacy
• D. Loss aversion

Answer: (C)

This question targets the idea that people keep a project going because they’ve already spent so much on it, rather than because the future of the project looks good. That impulse is the sunk cost fallacy: letting past, irrecoverable costs influence current decisions instead of evaluating only future costs and benefits. The amount already spent is a sunk cost—gone and not recoverable—so a rational choice would ignore it and focus on what will happen going forward. The fallacy explains why someone might persist with a failing project to justify the earlier investment, even when the outlook is poor. The other terms don’t fit as precisely: a sunk cost is the money already spent, not the biased behavior; emotional investment refers to personal attachment, not a systematic decision bias; and loss aversion describes a general tendency to fear losses, not specifically continuing an endeavor because of past expenditures.

This question targets the idea that people keep a project going because they’ve already spent so much on it, rather than because the future of the project looks good. That impulse is the sunk cost fallacy: letting past, irrecoverable costs influence current decisions instead of evaluating only future costs and benefits. The amount already spent is a sunk cost—gone and not recoverable—so a rational choice would ignore it and focus on what will happen going forward. The fallacy explains why someone might persist with a failing project to justify the earlier investment, even when the outlook is poor. The other terms don’t fit as precisely: a sunk cost is the money already spent, not the biased behavior; emotional investment refers to personal attachment, not a systematic decision bias; and loss aversion describes a general tendency to fear losses, not specifically continuing an endeavor because of past expenditures.