Sunk Cost
A cost already incurred that cannot be recovered, and which rational decision-making should ignore.
What is Sunk Cost?
A sunk cost is an expenditure that has already been made and cannot be recovered regardless of what future decisions are made. In rational economic theory, sunk costs should not influence future decisions — only future incremental costs and benefits should matter. However, people frequently fall prey to the sunk cost fallacy: continuing to invest in failing projects, unprofitable relationships, or losing investments simply because of the amount already spent. In corporate finance, sunk cost errors lead to value destruction: continuing to fund a failed drug development program because "$500 million has already been spent" ignores the reality that the $500 million is gone regardless of whether the project continues.
Example
A technology company spent $200 million developing a software platform over three years. Market research now shows demand for the product is minimal. A rational analysis based on forward-looking cash flows would recommend abandoning the project — the $200 million is a sunk cost and should not influence the decision. However, management continues investing another $100 million to "not waste" the prior investment, compounding the loss. Amazon's willingness to shut down Amazon Fire Phone rapidly after launch (2014) is a cited example of avoiding the sunk cost fallacy.
Source: CFA Institute — Economics