Why You Keep Holding Losing Investments: Hope Bias and Sunk Costs Explained

Why do you keep holding onto a stock that keeps dropping?

You bought shares in a company at $50. Now it’s at $22. The news is bad. Earnings missed again. Analysts lowered their targets. Your broker doesn’t call anymore. But you won’t sell. Why? Because you can’t accept the loss. You tell yourself, "It’ll bounce back. I just need to wait." That’s not patience. That’s hope bias and the sunk cost fallacy working together to trap you in a losing position. isrameds.com

What is the sunk cost fallacy?

The sunk cost fallacy is when you keep investing time, money, or effort into something just because you’ve already put so much into it-even when the evidence says it’s a bad idea. It’s not about future potential. It’s about past pain.

Imagine you paid $100 for a concert ticket. On the night of the show, it’s freezing, you’re sick, and the band canceled half the set. Do you go? Most people say yes. "I already paid for it." But the money’s gone. Whether you go or not, you can’t get it back. Going now won’t undo the cost. It just adds misery to loss.

In investing, it looks like this: You bought 100 shares of TechCorp at $40. Now it’s $18. You’ve lost $2,200. But you hold on, thinking, "If I sell now, I lose everything I put in." The truth? You already lost it. Selling doesn’t make the loss bigger. It just stops you from losing more.

Hope bias: Your brain rewriting reality

Hope bias is your mind’s way of protecting you from disappointment. It makes you believe good things are more likely than they are. When you’ve invested heavily, your brain refuses to accept failure. It starts filtering out bad news and amplifying tiny glimmers of hope.

Studies show people overestimate the chance of a losing investment recovering by 32% when they’ve put in serious money-compared to just 8% when it’s a fresh idea. That’s not optimism. That’s delusion fueled by emotion.

One Reddit user held $18,000 in GameStop stock for 11 months after it dropped 70%. Why? "I couldn’t accept losing what I already put in." That’s hope bias in action. The stock had no fundamental reason to recover. But his brain insisted it would. He wasn’t betting on the market. He was betting on his own denial.

Why your brain fights selling

There are three powerful forces at work when you hold a loser:

• Loss aversion: Losing $1,000 feels twice as bad as gaining $1,000 feels good. Your brain treats a paper loss like a real one-and it hates pain.
• Cognitive dissonance: You told yourself you were smart for picking this stock. Selling means admitting you were wrong. That hurts your self-image. Your brain fights to protect it.
• Emotional attachment: You spent hours researching. You talked about it at dinner. You felt proud when it went up. Letting go feels like abandoning a part of yourself.

Neuroscience backs this up. A 2019 study found people contemplating selling a losing stock showed 27% more activity in the brain’s conflict center-the anterior cingulate cortex. That’s the part that lights up when you’re torn between logic and emotion. You’re not being irrational. You’re in a neurological tug-of-war.

Real-world damage: It’s not just your portfolio

This isn’t just about stocks. It’s everywhere.

• Companies keep funding failing products. The Concorde jet kept flying even after it lost billions-because too much had already been spent.
• The U.S. government wasted $127 billion on defense projects between 2010 and 2018 because teams refused to cancel them, no matter how far over budget they went.
• People stay in unhappy relationships 2.3 years longer if they’ve bought a house together. The house isn’t the problem. The sunk cost is.

In investing, the numbers are brutal. Schwab’s research found retail investors hold losing positions 42 days longer than winning ones. That delay costs portfolios an average of 4.7% per year. That’s not a small mistake. That’s the difference between retiring comfortably and having to work longer.

How to stop holding losers

You can’t just will yourself to stop. Your brain is wired this way. But you can outsmart it.

1. Use the 10-Year Rule

Ask yourself: "How will I feel about this decision in 10 years?"

If you sell now, you might regret the loss. But in 10 years, you’ll forget the exact price you bought at. You’ll remember the money you saved by cutting your losses early and reinvesting it wisely. Harvard Business School found this simple question reduces bad decisions by 41%.

2. Reset your thinking: Zero-Based Decisioning

Imagine you don’t own this stock. You have $2,200 in cash right now. Would you buy this exact stock at its current price? If the answer is no, you shouldn’t hold it. The money you already spent doesn’t matter. Only the future does.

This is how professional investors think. They don’t care what they paid. They care what the asset is worth today and where it’s going.

3. Set rules before you buy

Before you invest, write down: "I will sell if the stock drops 20% from my purchase price and the company’s fundamentals don’t improve."

Then stick to it. This is called a pre-commitment device. It removes emotion from the moment of truth. When the stock hits your trigger, you sell automatically. No debate. No hope.

4. Use a Position Health Check

Charles Schwab recommends asking five questions before holding any position:

1. Has the company’s long-term outlook changed?
2. Is this stock still aligned with my investment goals?
3. Could I buy this stock again at today’s price?
4. Is there a better use for this money?
5. Am I holding it because of the price I paid?

If you answer "no" to three or more, it’s time to let go.

Who’s most at risk?

Millennials are 31% more likely to fall for this trap than Gen X. Why? They’ve seen more volatility. They’ve watched stocks crash and bounce back. So they believe "this too shall pass." But past performance doesn’t guarantee future results.

Entrepreneurs who’ve failed before are actually less likely to hold losers. Why? They’ve already felt the sting. They know when to walk away. That’s called "failure inoculation." You learn faster when you’ve been burned.

Can you fix this?

Yes. But not by trying harder. Not by reading more blogs. Not by hoping harder.

You fix it by changing your system-not your willpower.

People who work with behavioral finance advisors are 53% better at recognizing when they’re falling into this trap. Why? Advisors don’t care what you paid. They only care about your goals, your risk tolerance, and your next best move.

Even small tools help. The "Sunk Cost Calculator" app has been downloaded 287,000 times. Users report a 68% reduction in emotional holding after using it for six weeks.

What happens when you finally sell?

You feel awful. For a day. Maybe two.

Then you get your money back. You put it into something that actually works. You sleep better. Your portfolio grows again.

And next time? You’ll know the feeling. You’ll recognize the voice in your head saying, "I can’t lose what I’ve already put in."

And this time, you’ll say: "That money’s already gone. Let’s make the next one count."

What’s next?

Start tomorrow. Open your brokerage account. Look at every position that’s down 15% or more. Ask yourself: "If I didn’t own this, would I buy it now?" Write down your answer. Then make the call.

You don’t need to be perfect. You just need to be consistent. One clean decision today beats ten days of hoping.