The Sunk Cost Trap: Why You Keep Holding a Stock Just Because You Already Lost on It
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6 min read
You bought a stock at Rp2.000. It is now Rp1.400. You tell yourself: "I have already lost so much. I cannot sell now."
That thought feels like loyalty to your plan. It is actually a well-known thinking error called the sunk cost fallacy. A sunk cost is money, time or effort you have already spent and cannot get back. The fallacy is letting that spent money decide what you do next.
This post shows how the sunk cost fallacy works in investing, what the research says, and one question that cuts through it.
The idea is simple. Money you already lost is gone. It will not come back because you wait, and it will not come back because you refuse to sell.
The only thing you can still choose is what happens from today. So a clear decision looks forward: "Given what I know now, is this the best place for my money?"
The sunk cost fallacy flips that. It asks backward: "How do I avoid admitting that my first choice was wrong?"
Two classic studies are worth knowing. I saw both only through search summaries and abstracts, and I did not open the full papers.
The theater tickets. In 1985, Hal Arkes and Catherine Blumer published "The Psychology of Sunk Cost" in Organizational Behavior and Human Decision Processes. At Ohio University's theater, buyers of season tickets were randomly given different prices. Summaries of the study report prices of $15 (full), $13 and $8. Those who paid more attended more plays over the next six months. Once a ticket is bought, every holder has the same right to attend, so the price paid should not change who shows up. The authors tied it to a wish not to appear wasteful. (Search summary of the study)
The business decision. In 1976, Barry Staw published "Knee-Deep in the Big Muddy" in the same journal family (Organizational Behavior and Human Performance). In a role-play with 240 business students, people committed the most extra money to a past choice when they felt personally responsible for its bad result. This is called escalation of commitment: adding more to a losing bet because of what you have already put in. (Overview of the 1976 paper)
Both studies were done with small groups in set-up situations. They show a pattern in how people think. They do not predict what you will do with your own money.
The trap hides behind sentences that sound sensible.
This is close to the disposition effect, where investors sell winners early and hold losers too long, and to loss aversion, where a loss stings more than a gain pleases. Sunk cost adds one more push: the wish to justify what you already spent.
This is NetWort arithmetic with made-up numbers.
Dina bought 100 lot of a stock at Rp2.000 per share. One lot is 100 shares, so she owns 10.000 shares.
| Per share | Total | |
|---|---|---|
| Bought | Rp2.000 | Rp20.000.000 |
| Today | Rp1.400 | Rp14.000.000 |
| Paper loss | -Rp600 | -Rp6.000.000 |
Dina thinks: "If I sell, I lock in a Rp6 juta loss. I will wait for Rp2.000."
Now look at it without the history. Imagine she holds Rp14 juta in cash instead. Would she buy this stock today, at Rp1.400, for the reason she has now? If yes, holding is fine, and it is a fresh choice. If no, the only thing keeping her in is the Rp6 juta already lost.
That Rp6 juta is a sunk cost. It is the same whether she sells or keeps the stock.
Ask this: "If I did not own this already, would I buy it today at this price, for this reason?"
Then use the answer.
Notice that nothing in the question mentions your buy price. That is the point.
Also check what changed. Did the business results worsen? Did the story you bought it for end? If the facts are the same and only the price fell, that is a different situation from a broken reason.
Open the NetWort Dashboard and look at your Portfolio Health score and the positions that are down the most. For each one, ask the question above. Your answers show which holdings you keep for a reason and which you keep only because you already lost on them.