Sunk Cost Fallacy
Risk ManagementStaying in a losing position or strategy because of the time and money already spent rather than its forward-looking merits.
The sunk cost fallacy is the tendency to keep committing to a decision because of what has already been spent on it, rather than because of what it is likely to do from here. In trading it appears as holding a losing position past the planned exit ‘because I have already lost this much’, adding to it purely to lower the average entry price, or persisting with a strategy after months of effort even once the reasoning behind it has failed. Money and time already spent are gone either way and cannot be recovered by the current position; only the forward-looking case matters. Pre-defined stop levels and position-sizing rules are widely used precisely because they settle the exit decision before any sunk cost exists.