When a high-profile “AI trading” platform collapsed in April 2025, hundreds of thousands of Nigerians lost their money. But before the crash, something else happened: as reports spread that other users couldn’t get their money out, some investors didn’t pause — they topped up. Not because the platform looked stronger, but because they had already put so much in.
The instinct that drove that decision has a name: sunk cost.
A sunk cost is money, time, or effort you’ve already spent on a failed idea, project or goal and cannot recover, no matter what you decide to do next. Rationally, it should have no influence on your next decision because it stays the same either way.
What hurts your finances is the sunk cost fallacy — the emotional pull to keep pouring money into a failing investment, side hustle, or commitment precisely because of how much you’ve already put in.
This article defines sunk cost, explains the fallacy (the real wealth-killer for many finance-savvy Nigerians), shows where it hides in the average Nigerian’s money life, and gives you a framework for mitigating the effects of this phenomenon.
What does sunk cost fallacy mean?
“Sunk cost” and “sunk cost fallacy” get used interchangeably, but they describe two different things — and separating them is the foundation for every good money decision that follows.
First, what counts as a sunk cost?
A sunk cost is any expense (money, time, or effort) incurred in service of a goal or idea. It includes rent already paid, school fees settled, japa application fees submitted, the months of evenings you put into a course you didn’t finish, and even capital already committed to a side hustle. Sunk costs are unavoidable, but they are not, by themselves, a mistake.
So, what’s the fallacy?
The sunk cost fallacy is the cognitive bias that lets past, irrecoverable spending dictate your next decision. It is when we justify spending with arguments like “I’ve come too far to stop now,” “after all the money I’ve put inside,” or even “I’ll wait until it comes back.” The cost itself is neutral and not necessarily a bad thing. The fallacy is the wealth-killer.
A 2022 study by Dr Musa Ilias Biala of Kwara State University, published in the Management & Economics Research Journal, found that 49% of Nigerian respondents committed the sunk-cost fallacy in controlled scenarios — and the effect was stronger when the cost was their own. Nearly half of all decisions were influenced by money already spent rather than the facts on the ground.
In an economy where the Piggyvest Savings Report 2025 shows 53% of Nigerians don’t save, and 6 in 10 have no emergency fund, every Naira trapped in a bad decision is one that isn’t building a buffer somewhere else.
How can the sunk cost fallacy impact your finances and decision-making?
The fallacy is rarely loud. It hides inside reasonable-sounding sentences and quietly compounds.
Here are four places it shows up most often in Nigerian money life:
1. In your investing decisions
Say you bought ₦500,000 of a Nigerian stock at ₦50 a share. It drops to ₦30, leaving your holding worth ₦300,000 on paper. Holding through a drop (or even buying more) can be the right move if you have a clear, forward-looking reason: say, the company’s fundamentals are still strong, the dip looks overdone, or your long-term thesis hasn’t changed. That’s investing.
Sunk-cost thinking is different. It sounds like “Hold until it returns to ₦50,” or “Put another ₦200,000 to average down,” with no fresh reason beyond getting back to break-even. After all, that ₦200,000 loss is only on paper until you sell. The harder question is what to do with fresh money.
Here’s a test to know if you’re falling into the fallacy: if you had ₦200,000 today and no history with this stock, would you buy it at ₦30? If yes, hold or add. If no, the only thing keeping you in is what you’ve already paid — and that’s the fallacy.
The same instinct explains why investors refuse to rebalance their portfolios — selling a loser to fund a winner feels like admitting a mistake.
2. In speculative platforms and Ponzi schemes
When returns wobble or freeze, the rational move is to ask: would I put money into this today, knowing what I now know? Instead, many investors top up to “protect” what they’ve deposited, turning one bad decision into a compounding one. The My Money Mistake series on the Piggyvest Blog is full of these stories, including the man who took a loan to invest in a Ponzi scheme.
The sunk cost wasn’t the first deposit; it was every deposit after the warning signs.
3. In side hustles and small businesses
In 2021, we wrote about how a Piggyvest reader lost 70% of his ₦2 million investment on a fishery that had been bleeding capital for months. The size of his initial spend made walking away harder, not easier (after all, admitting a small loss is bruising; admitting a ₦2 million loss feels like admitting your judgement at the same scale). So he kept funding it.
That’s sunk-cost thinking dressed up as perseverance, and it’s one of the most expensive mistakes a Nigerian entrepreneur can make. Here’s an honest question you can use to check yourself: “If I were starting today, would I still launch this?”
4. In your monthly subscriptions
A DStv Premium + Netflix Premium stack typically runs around ₦53,000 a month — more than the monthly income of nearly 3 in 10 Nigerians (per the Piggyvest Savings Report 2025). And yet many people keep paying because “I’ve already paid for the decoder” or “I’ve been on this plan for years.”
The decoder is sunk. The years of past payments are sunk. Neither changes the only number that matters: whether the next month’s bill is worth what you’ll actually use it for.
However, no single one of these is catastrophic on its own. The damage is that the same instinct quietly shapes your money choices, until you are self-sabotaging instead of wealth-building.
Are sunk costs always a mistake?
Let’s be clear: sunk costs aren’t always a mistake, and this is the nuance many people miss. It’s also why many seemingly better-educated Nigerians keep making the same ones.
Three things worth holding onto here:
- Sunk costs are unavoidable. Every financial decision creates one. Your rent. Your school fees. The ₦5,000 you put into your first SafeLock. All sunk the moment they left your account.
- Not every irrecoverable expense is wasted. School fees paid years ago produced a degree that’s still earning income. A coding bootcamp or CFA prep compounds across your career. A mid-term SafeLock hasn’t disappeared either; it’s committed, with a maturity date and a defined return waiting. A sunk cost building toward a future return is fundamentally different from one anchoring you to a failing decision.
- The mistake is never the cost; it’s the fallacy. What hurts your finances is letting past spending override what the future facts are telling you. Future costs and future benefits are the only inputs that should drive your next decision. Everything else is noise wearing the costume of commitment.
Once you start judging decisions by what they cost you forward — not backwards — the next question is practical: how do you actually catch yourself before the fallacy harms your financial prospects?
How to avoid and navigate the sunk cost fallacy
You can’t reliably think your way out of a bias in the moment you’re feeling it. What works is having clear tools set up in advance, before any money is on the line. Here are three tests, plus one structural defence.
Three tests to reset any money decision:
- The Fresh Start Test. Ask one question: “If I had this money fresh today — no history, only today’s facts — would I put it here?” If the answer is no, the only thing keeping you in the position is the sunk cost.
- The Past–Present–Future check. Write down every reason you’re staying in the commitment. Cross out anything that depends on money already spent, time already invested, or effort already made. Whatever is left must be forward-looking. If those reasons alone don’t justify staying, walk away.
- The pre-written exit rule. The most reliable defence is a rule you wrote when calm. Before entering a position (from a stock to a side hustle, and even a ₦2 million business idea), write the exit conditions on paper: “If this stock drops 20%, I sell. If the side hustle isn’t cash-flow positive by month seven, I shut it.” Decisions made cold survive moments that are hot.
In other words, let your systems do the heavy lifting.
The bottom line
Every financial decision creates a sunk cost. What hurts your wealth is letting that past spending decide your next move. Pick one thing you’re holding onto today because of how much you’ve already put in (a subscription, a slow asset, or a side hustle) and run the Fresh Start Test on it.
If today’s facts don’t justify the spend, you’ve found a leak. Plug it, and redirect the next Naira to a goal that’s moving forward. You can start on the Piggyvest app — every tool is built to keep your money pointed at the future, not the past.
