The Sunk Cost Fallacy: The bias that can get you scammed

In our latest Resolver Story, we covered how a cryptocurrency scam led Caroline and James into bankruptcy.

When it comes to scams like this there is one question that comes up again and again: why would you keep sending money when all the signs are clearly pointing to a scam? But what may seem entirely irrational actually follows a well-known form of cognitive bias: one that every consumer should be aware of.

What is the sunk cost fallacy?

A sunk cost is an economic term for money that has already been spent and cannot be recovered.

Psychology researchers who study cognitive biases are interested in the kinds of distortions of thinking that lead us into irrational behaviours and bad decision making. They have found that our perception of a sunk cost – whether time, money or effort – makes us more likely to continue with something, even when walking away would clearly be the better choice.

As a psychological phenomenon, the sunk cost fallacy can be applied to almost anything: from forcing yourself to watch a boring movie just because you already paid for it, to refusing to pull out of a failing business. In everyday language, it’s known as throwing good money after bad.

It is one of the most common forms of cognitive bias and it doesn’t just apply to individuals: one of the most famous real-world examples is the Concorde project, when the British and French governments continued investing in the supersonic jet long after it was clear the project wouldn’t be profitable. The example became so iconic that the sunk cost fallacy is also known as the Concorde Fallacy.

Why does this happen?

Like all forms of cognitive bias, the sunk cost fallacy can immediately seem completely nonsensical. But researchers have identified several powerful psychological factors behind it:

Loss aversion: We fear losing more than we value gaining.
Unrealistic optimism: We believe we’re less likely than others to experience a negative outcome.
Framing effect: Our decisions are heavily influenced by how information is presented (positive vs. negative).
Personal responsibility: When we made the original decision, it’s harder to walk away.
Avoiding waste: We stick with bad investments to avoid the guilt of “wasting” money.

How the sunk cost fallacy enables scams

When you’re being scammed, it often starts as what looks like a legitimate investment. Once money is sent, it’s natural to want to believe you’ll get a return. Optimism kicks in. You tell yourself: “Other people get scammed, not me.”

In Caroline and James’ case, even after Action Fraud raised flags, James dismissed it because the advice wasn’t explicit enough. So, he kept paying.

As losses grow, loss aversion takes over. You’ve already spent so much, you can’t afford to stop. Scammers exploit this by bombarding you with urgent messages and false promises. The deeper you’re in, the harder it becomes to pull out.

You see this in other kinds of relationships too. People often stay in an unhappy romantic relationship because of “everything they’ve put in” over the years, even when they know that leaving would be the better option for them.

There’s also shame. Admitting you’ve been conned can feel like admitting failure. That pride can keep you locked in even as the damage grows emotionally and financially.

This is how a simple bias leaves you vulnerable to manipulation, and why the cost of being scammed goes far beyond your bank account.

We’ve all been there

It’s easy to believe you’d never fall for something like that, but the sunk cost fallacy doesn’t just show up in scams. It appears in all kinds of scenarios, from staying in an unfulfilling job because you’ve been there “too long to quit now”, or chasing a failing business idea because of how much you’ve already spent.

This fallacy is universal. So, if you or someone you know is falling prey to a scam, remember: this is not “being stupid” but getting stuck in a very human trap.

How to avoid the sunk cost fallacy

Now that you understand how it works, how can you guard yourself against it?

Stay self-aware: Recognising the fallacy is the first step. Ask yourself: Am I continuing because it still makes sense or because I’ve already put so much in? What advice would you give a friend in the same situation?
Use data and set limits: Especially for financial decisions, define your goals and limits upfront. Know what you’re willing to lose, and when to walk away.
Don’t stay on a sinking ship: Whether it’s a failing relationship, a friend who won’t repay you, or a broker who keeps making excuses – you’re not obliged to keep going just because you’ve already spent something. In most cases, things don’t magically improve. Cut your losses before they cut deeper.

Think you’ve been scammed?

If you or someone you know has fallen victim to a scam:

Contact Action Fraud
Contact your bank immediately
Speak to someone you trust: family, a friend, therapist, or Victim Support
Keep a record of all messages, calls, and transactions
Stop sending money and block all contact with the scammer

We also encourage you to read our full Resolver Story where Caroline shares how she and her husband lost their life savings in just a few months. They bravely chose to tell their story to help others avoid the same fate.

If you were scammed and your bank didn’t support you, our recommended partner UK Fraud Helpline can help you seek justice. Check your eligibility and start your claim here.