Sunken cost fallacy

<p>"<a class="wikilink" href="/sunken_cost/">Sunken Cost</a>" is something easy to hear but hard to parse. </p> <p>I have recently been in some discussions with people saying: if an investor already invested so much money into a company, they will keep investing until it's successful. </p> <p>This is a fallacy that extends beyond <a class="wikilink" href="/venture_capital/">Venture Capital</a> investment in <a class="wikilink" href="/startups/">startups</a>. </p> <p>Keep pouring money into something may just lead to higher loses (for instance see <a class="wikilink" href="/net_present_value/">Net present value</a>). </p> <p>The fallacy is easy to fall into in daily life, but investors a quite aware of it. That's why they hedge investments, and cover the downsides (for instance, how to liquidate assets to cover the investment, what are the collaterals, etc.)</p>