Understanding the concept of a sunk cost is very important for investors to avoid falling victim to human nature. The sunk cost fallacy refers to the tendency to hold on to a losing strategy (e.g. investment, purchase, or even sitting through the end of a terrible movie) solely based upon the fact that you have already put time and energy into it—regardless of whether it has any chance of proving profitable in the future. It involves situations where making the current decision of cutting your losses is viewed as an admission of defeat and of having made bad decisions in the past. For example, if you get hung up on never allowing yourself to get rid of a losing position because of being anchored to its original value, you limit your diversification and in turn can increase your risk exposure. Jim Parker, Vice President of DFA, does a great job describing the potential impact of the sunk cost fallacy in “Unhealthy Attachments.” He not only ties the related pitfalls to investing, but also to other purchases and experiences—even a ticket to a bad movie. Truly understanding the behaviors that affect decision making can be a beneficial endeavor for savvy investors.