Sunk cost (versunkene Kosten)
A sunk cost is money, time, or effort already spent that cannot be recovered, regardless of what happens next. Because it stays the same under every future option, a sound decision ignores sunk costs and compares only the costs and benefits still ahead. Continuing something mainly because of past spending — not because it is still the best forward-looking choice — is the sunk cost fallacy.
Why it matters
Long-term residents in Germany make repeated financial commitments: a Sparplan (recurring savings plan) into a fund that underperforms, a fully paid Weiterbildung (professional training course) that turns out to be the wrong fit, a deposit on a Wohnung (apartment) that falls through. The instinct to "see it through because I already paid" is sunk cost thinking, and it competes directly with opportunity cost (the value of the best forgone alternative): every euro or hour kept in a losing position is a euro or hour not spent on something better. Separating what is already gone from what happens next turns a decision to cut losses or continue into a forward-looking comparison instead of an emotional one.
Worked examples
1. A paid course. A resident pays €800 upfront for a 10-week Weiterbildung course. After two sessions, a better-fit alternative becomes available at no cost through the Arbeitsagentur (federal employment agency). The €800 is spent either way — finishing the paid course does not refund it, and switching does not lose it twice. The decision should compare only what remains: the final eight sessions of the paid course against the free alternative, judged on relevance, schedule, and certification value, not on the €800 already gone.
2. An underperforming investment. An investor put €5,000 into a fund now worth €3,500 — a €1,500 loss. Two ways of framing the next decision:
| Reasoning | Question asked | Does the €1,500 loss change? |
|---|---|---|
| Sunk-cost reasoning | "I've already lost €1,500 — I should hold until it recovers to break even." | No — fixed either way |
| Forward-looking reasoning | "Given the fund's current €3,500 value, is holding it the best use of that €3,500 today?" | No — fixed either way |
The €1,500 loss is identical under both approaches; nothing about the decision restores it. What differs is whether the remaining €3,500 gets redeployed toward a better-fit position or held out of reluctance to make the loss "final" by selling.
Check yourself
You paid a non-refundable €600 annual gym membership. Three months in, you're barely using it. From today's decision point, what is true of the €600?
Which of these statements about sunk costs are correct? Select all that apply.
An investor bought a fund for €5,000. It is now worth €3,500. Using sunk-cost-free reasoning, what euro amount should be the basis for deciding whether to keep holding or reallocate?
You already paid €1,200 for a non-refundable German course. A free but time-conflicting alternative course just became available. In this scenario, which amount is the sunk cost and which is the opportunity cost of continuing the paid course?