Have you ever watched a movie that you don't like but instead of turning the movie off, you continued watching it?

Have you ever remained in a relationship longer than you should have but you stayed because you had already invested years of your life?

Have you ever lost money at a poker game and instead of cutting your losses you remained at the table in hope to win all your money back?

There is a reason why humans do that and it's called the sunk cost fallacy.

The sunk cost fallacy is defined as the continuous investment of time, money or energy into a situation even though the costs always outweigh the benefits. For example you invested $1,000 into a small business and after a few months all that money is gone. Instead of cutting your losses and investing somewhere else, you reinvest another $1,000 into the same business you already invested $1,000, hoping that you will recuperate $2000 (the first and second investment). However, you loose all your money again and the cycle continues.

Why do we do it?

The main reason why the sunk fallacy occurs is because human beings are irrational. When we make a bad decision, we feel shame, guilt and regret. We try to resolve these feelings by reinvesting into the bad decision in the hope we will even out the score. Psychologically, humans also tend to focus more on the losses than the gains. This is called loss aversion. Multiple studies show that human beings experience losses asymmetrically and more severely than equivalent gains. For example humans rather prevent the loss of $50 than win $50.

How can we prevent it?

When making a decision, don't factor in irrational past decisions into the current decision making process. There are some useful mental models, such as first principle thinking (break down a decision or question to its fundamental principles.), that allow you to assess a situation in a pragmatic way. Don't let past decisions cloud your judgement. The past should be a lesson and not define your future.