# Sunk Cost Trap . The First Loss Is The Cheapest

_Systematic Investing . 2026-05-26 . By Tanmay Kurtkoti. Educational, illustrative, not advice._

Sunday evening. Friend's brokerage app open on the kitchen table. One position 35 pct red. Held it two years. The line he just said out loud .

"I have already lost so much on it. Might as well wait for it to come back to my buy price."

The stock does not know he bought it. The buy price is a number on his statement, not a number in the market. Two years is the receipt. The next two years is a fresh decision. He was treating them as if they were the same trade.

The bias has a name. Arkes and Blumer wrote it up in 1985 . sunk cost fallacy. It rides on top of loss aversion (Kahneman and Tversky 1979 . a loss hurts roughly twice as much as the equivalent gain feels good) and escalation of commitment (Staw 1976 . the deeper in you are, the harder it is to walk away).

Run the math and the bias hides two costs, not one.

The first is the recovery asymmetry. A 35 pct hole needs 54 pct to climb out. A 50 pct hole needs 100 pct. A 70 pct hole needs 233 pct. The gain required to break even is loss divided by one minus loss. It grows non-linearly.

The second is the opportunity cost of the wait. Same Rs 65000 rump position, three years forward. Hold flat lands at Rs 65000. Hold with a -3 pct annual drift lands at Rs 59324. Cut and redeploy at the index earning 12 pct lands at Rs 91320. Roughly Rs 30000 the portfolio never sees, on a Rs 65000 base.

Three questions that flip the read. Would you buy this stock today at this price with fresh cash. Is the next rupee a forward decision or a loyalty payment. Does cut and redeploy have to win, or does it just have to not lose to break-even-with-the-original.

The first cut is the cheapest. Every additional day of holding is a fresh choice to hold, dressed up as the original purchase