Sunk cost fallacy causes investors to throw good money after bad investments from "summary" of The Little Book of Behavioral Investing by James Montier
The sunk cost fallacy is a common cognitive bias that influences decision-making process of investors. This bias occurs when individuals continue to invest in a losing proposition simply because they have already committed resources to it. In other words, they are unwilling to cut their losses because they have already spent time, money, or effort on the investment. This irrational behavior is driven by the desire to recoup the initial investment, even when it is clear that the investment is not performing as expected.
Investors fall victim to the sunk cost fallacy when they allow past decisions to cloud their judgment about the future prospects of an investment. Instead of objecti...
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