What are Naval's thoughts on the 'sunk cost fallacy'?

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Hey, that’s a fantastic question! Much of Naval’s thinking actually teaches us how to make wiser decisions, and the "sunk cost fallacy" is one of the most common traps ordinary people fall into.

If you flip through The Almanack of Naval Ravikant or listen to his podcasts, you won’t find an entire chapter "defining" sunk costs. But his perspective on this concept permeates almost everything he says about decision-making, rationality, and personal freedom.

Below, I’ll try to explain his view on this in plain language, using Naval’s principles.

First: Forget What You’ve Already Invested—It’s Already "Dead"

Picture this scenario:

You spend $100 on a movie ticket. Twenty minutes into the film, you realize it’s the worst movie you’ve ever seen—utterly boring. What do you do?

A. Grit your teeth and keep watching. "I’ve already paid for it! It’d be such a waste not to finish!"

B. Get up and leave immediately. Go grab a coffee or head home to read a great book.

Many choose A—that’s the classic "sunk cost fallacy." That $100 ceased to be yours the moment you paid. It has already "sunk," disappeared. You can’t get it back, no matter what.

Your next decision should only involve your future time and experience.

Staying = Wasting the next 90 minutes + Enduring a miserable mood.
Leaving = Regaining 90 minutes + Spending time on something enjoyable.

Naval’s take is B. He’d tell you the past no longer exists; it only lives in your memory. All you possess is the present, and every decision should be made for a better future. That spent money, invested time, or emotional effort are "sunk costs." They shouldn’t shackle your future choices.

The Core of Sunk Costs: Your "Ego" Is the Problem

Why do we stay through a bad movie? Why cling to a failing project after investing money?

Naval would say it’s not just about the money—it’s an Ego issue.

Admitting failure is too hard: Abandoning a project or leaving a toxic relationship means telling yourself: "My initial decision was wrong." This hurts our pride. To preserve the "I’m always right" image, we double down on mistakes, hoping for a miracle.
Fear of judgment: We worry others will say: "Look, they failed," or "How foolish—they wasted all that money."

Naval fiercely advocates detaching from ego. He believes your ego is the biggest barrier to happiness and sound judgment. A truly rational person separates "self" from "decision."

Admit a poor decision and correct it immediately. This doesn’t mean you failed—only that that decision proved ineffective based on available information. That’s all.

Opportunity Cost > Sunk Cost

This is a deeper layer in Naval’s philosophy.

When you waste more time on a sinking ship to justify sunk costs, what’s the real price?

Not the money already lost (it’s gone), but the value you "could have" created by using that time elsewhere. That’s opportunity cost.

Suffering through 90 minutes of a bad film means missing out on reading a great book, family time, or planning a new project.
Spending three years propping up a doomed startup means forfeiting the chance to learn new skills, join a promising team, or launch a viable venture.

To Naval, your time and energy are life’s most precious resources. Squandering them on past mistakes is the ultimate foolish trade.

How to Overcome the Sunk Cost Fallacy Like Naval?

Naval offers straightforward advice:

Ask the "miracle question":

"If I weren’t already invested in this—with my current knowledge—would I choose to start it today?"

If the answer is "no," stop immediately. This shifts your focus from the past to the present, weighing only future gains.
Separate identity from decisions: You aren’t your investments or your job. A failed decision doesn’t mean you failed. Embrace mistakes. Treat them like experimental data—learn and move forward, like a scientist.
Master "cutting losses": True mastery in investing and life lies in strategic retreat. In any long-term game, small failures are inevitable—just don’t let stubbornness turn them into catastrophes. Cutting losses preserves your future potential.

Summary

To Naval, the "sunk cost fallacy" transcends economics or psychology—it’s a philosophical issue of rationality, self-awareness, and freedom in life.

His core ideas:

Focus forward: Your future is far more important than your past.
Detach from ego: Admitting mistakes isn’t shameful—it’s wisdom.
Calculate opportunity cost: Always ask: "Is this the best use of my time among all options?"

Mastering these frees you from sunk costs and unlocks wiser, more liberated decision-making.