What characterizes the sunk-cost bias?

The sunk-cost bias is characterized by investment decisions that take into account prior resources that have already been invested and cannot be recovered. This bias leads individuals and organizations to consider the time, money, or effort already spent on a project when making decisions about whether to continue investing in it, rather than evaluating the future prospects or potential returns of that investment. This can result in continuing with a failing project simply because of the resources that have already been committed, which can hinder the ability to make objective, rational decisions focused on future opportunities.

In contrast, short-term risk evaluation focuses on assessing immediate risks and benefits, while future assessments based on market trends involve analyzing current and projected market movements without the influence of past investments. Emotional responses to financial losses could also play a role in decision-making but are more related to the psychological impacts of loss rather than the rationale behind the sunk-cost bias itself. Focusing solely on prior resources disregards potential future gains or losses, which is the fundamental issue with the sunk-cost bias.