Have you ever sat through a movie even though you knew 10 minutes in that it was no good? You're here now and you've spent the time and money - might as well finish the movie, right? If so, you've been a victim to the sunk cost fallacy.

"The sunk cost effect is the general tendency for people to continue an endeavor, or continue consuming or pursuing an option, if they’ve invested time or money or some resource in it."
Christopher Olivola

Our minds tend to view our lives as a linear timeline, where the present represents a dot between the past and the future. We're always living in the context of the past – the person you are today depends on your past decisions, the situation you're in is simply an outcome of your past events.

That's all very logical, but this world view tends to allow sunk costs (irrecoverable investments that have already been made) to guide your decisions, meaning that you'll often do things because "you owe it to your past self that made the investment". Therein lies the fallacy, because your past self is not a separate person that judges you or cares about how you spend your time – in fact your past self does not even "exist", in the sense that something needs to be in the present to exist.

So why do we do this? It's a common psychological trap because we like to think that we always make good investments (of money, time, emotion) which always pay off, and as a result we want to "stick to the end" and reap the consequences of our investments, ignoring completely if they are good or bad.

A more positive world view looks like this:

Each dot is a moment – the "now" – that we live in. What's happened has happened, so there's no point fretting over past investments. You can guess bits of the near future, but it very quickly becomes ambiguous the farther you go. So the best we can do is to think "ignoring past investments, what makes sense to do now given the present situation?" If you're in a movie theatre watching a boring film, the answer is to leave and make the most of your time rather than sulking with your decisions in the theatre.

Similarly, if you realise a few years into a career path that it's not for you, but you have invested money into building the relevant skills, that sunk cost does not matter. You are living only in the present – the "now" – and the rational thing to think is how to maximise value for yourself now. If it comes from pursuing a different career, then so be it.

Don't get me wrong – sometimes the answer can very well be to carry on with the work you've invested in because it will lead to the goal you're after. But it's important to still ask the question to make sure your decisions are driven by reason rather than by emotion or inertia. So remember to always ask yourself:

"Ignoring past investments, what makes sense to do now?"