Question

Cindy has pumped over $850,000 into a small business that has consistently lost money every year it has been open. She reasons that she has to continue investing time and money in her business because she's "already put so much into it" (instead of selling the business and cutting her losses). Cindy's reasoning illustrates:

Answer 1

Cindy's reasoning illustrates: sunk-cost fallacy.

Explanation:

The term fallacy refers to failure in reasoning and mistaken belief. A sunk cost is a cost incurred in the business that cannot be recovered. The cost invested in the business and lost is referred as sunk cost.

Sunk cost fallacy gives false hope to the people about their investment plan in business and makes them take wrong decision.

In the above scenario, Cindy invested $850,000 into the business. She faced loss continuously and lost her money. But she stills thinks on investing in her business instead of selling it.