Sunk cost fallacy is a cognitive bias that causes Bob to remain committed to a course of action because he's already spent time or resources on it, even though the commitment is irrational (i.e. he would be better off walking away). When Bob is engaging in this fallacy, he will remain set on the course of action even if the profit from his success would be less than what he's already spent.
His line of thought might run thus:
I could buy the prize elsewhere for five dollars.
But if I stop now, the money I already spent will be wasted, so I must continue.
This trope is not merely Bob's commitment to a course of action because he's invested too much to turn back. If Bob has already made the down payment on a house, for example, he is likely to continue in the purchase of that house since he would lose money for no gain if he stops. In order for a situation to be the Sunk Cost Fallacy, it must be one where (1) Bob remains committed to a course of action in order to justify what he has already spent on it and (2) it is obvious to any rational person that the cost of staying in now will exceed the cost of simply stopping now, taking on the loss, and moving on.
This forms a particularly powerful combination with the Gambler's Fallacy, since Bob will not only continue because he does not want to have wasted his money, but also because the very fact he has made losses is evidence he is "due" for a win. These two false forms of reasoning drive ruinous gambling problems.
- Foot in the door (in sales)
- Camel's nose (in social psychology)
- Throwing good money after bad (in business)
- Pay-or-play (in sports and entertainment)
- Pouring sand down a rat hole (usually in politics)
- In the sequel to The Dark Lords of Nerima, The Dark Lords Ascendant, this is the Big Bad Tanizaki Kazuo's Fatal Flaw. His Evil Plan was to use a clone of Sailor Moon, Unit Zero (with, to take control of the Silver Crystal and its reality-altering powers to reshape reality so he's on top of the entire world(using spares for when the strain kills her, since he expects it to take several tries). Unfortunately for him, Ranma and the rest of the Nerima Wrecking Crew end up throwing a monkey wrench into the plan, allowing Sailor Moon to survive and keeping Unit Zero from using the Silver Crystal's Reality Warper abilities since Sailor Moon still maintains a connection to it. Tanizaki, needing to kill Sailor Moon for his plans to come to completion, tries multiple plans to finish her off, getting increasingly desperate as his resources and support base rapidly dwindle and he loses his Villain with Good Publicity status in the process. For his penultimate and ultimate plans he ends up releasing the Wyrmspawn, an ancient beast with immunity to magic that he believed was completely unkillable, and making a deal with The Nameless One that could result in it being freed, believing that if he can just get Silver Crystal he could "fix" everything the way that he wanted. Ultimately, Sailor Moon foils him by splitting the Crystal so both she and Unit Zero could survive, which he can't comprehend, since Unit Zero is disposable in his eyes, rendering his plans All for Nothing. And that isn't even the end of it, since Ranma manages to figure out that he's using a Soul Jar to gain immortality, and has Ryouga destroy it, rendering him mortal again and allowing Ranma to kill him, all of which he could have avoided if he'd realized that he should have given up earlier.
- In the Triptych Continuum, this is the central reason the Crusade continues: the Cutie Mark Crusaders have essentially become fanatics in the name of their cause, and to stop would invalidate everything which had come before — including all the accidents, disaster relief forms, reparations, and tree sap. The Fallacy itself winds up being summarized in a speech by Apple Bloom, and the voicing of it is part of what finally breaks the Crusade.
"Gotta do it for a day because y'try," she slowly said. "Then y'go for a week 'cause iffin y'don't, y'wasted the day. Then it's a moon, lots of moons, and then when it's a year, it's gotta be more. We keep goin' an' goin' 'cause if we ever stop, then it means we wasted everything. An' we could just keep goin' til we're grown up, out of school, but we won't have jobs because we don't have marks and the only thing we can do is look some more. It's nearly three years an' if Ah do it for one more day, it could turn into... It's too much, an' Ah think — it's been too much for a while. Too long. An' — an' it ain't worth it no more."
- In Conned Again, Watson! by Colin Bruce, a book that uses the Sherlock Holmes characters to explain statistics, Holmes explains this fallacy and several others to the client, a businessman who is putting more money into a less successful venture because it cost more to start with, and Watson thinks smugly that he can avoid mistakes like that. The following day, Watson buys a loaf of bread for sandwiches, and then walks past a street vendor selling ham sandwiches at a reduced price to get ham from the butcher. When Holmes points this out, Watson, of course, replies "But I had already bought the bread."
- Reacher Gilt's scam in Going Postal relies heavily on this. Even as the service on the Grand Trunk semaphore line gets worse and worse, he sweet-talks investors and board-members into "throwing good money after bad" while pocketing most of it and covering it up with tricky accounting and corporate buzzwords like "embracing diversity" and "synergistically". Not-quite-reformed con artist Moist von Lipwig is equal parts impressed and disgusted when he realizes what Gilt is up to.
- The Licanius Trilogy: A variant of this fallacy is part of why the loyalist faction of the Venerate stay loyal to Shammaeloth. It promises the power to rewrite the past, meaning that all the atrocities the Venerate committed to get where they are can be undone. And so the Venerate persist in their faith, even in the face of mounting evidence that they were lied to and Shammaeloth has nothing but pain and suffering in mind, because giving up on their loyalty to Shammaeloth would mean admitting that all their crimes can never be undone.
- In a "Blogs of Doom" column in Doctor Who Magazine based on "The Brain of Morbius", Condo asks Solon why he needs to cut off the Doctor's head and put it on the Mix-and-Match Man he's created to house Morbius's brain, instead of just putting the brain in the Doctor's body. Solon replies that he's built a patchwork body and it took a lot of time and effort, and he's using it.
- The Megas: By "Gamma Unchained" in History Repeating - Blue, Wily has ended up falling fully into this, convinced that after all the damage his past plans to Take Over the World (for everyone's own good, of course) have done, he has to win, otherwise all those deaths were pointless. So he builds a giant robot that decides to "restore peace" by killing everyone.
I cheated, the lies that I told/Were for a future that I have seen/The death, the lives that I stole/The end has to justify the means.
- In Ringtone by "Weird Al" Yankovic, the protagonist explains that he absolutely despised his ringtone, that its caused him nothing but trouble, and he cant even remember why he bought it in the first place... but he refuses to just delete it because he doesnt want to waste the $1.99 he spent on it.
- The Last Podcast on the Left: In part 3 of their series on the Aum Shinrikyo cult, the hosts tell the story of a woman who joined the cult, fled multiple times, and each time was brought back and made to undergo the Bardo Initiation, a ritual meant to frighten her into staying. Eventually, when she fled again, she returned entirely on her own because she couldn't escape the thought of the cult's guru, Shoko Asahara, sending her to Hell. Hosts Marcus Parks and Henry Zebrowski note the Sunk Cost Fallacy as one of the reasons for this behavior. By leaving, all the suffering she went through while part of the cult, all the years spent there, all the years her family spent there because of her joining, would become All for Nothing. This idea would become a frequent talking point on future cult episodes, such as L Ron Hubbard's Scientology, Jim Jones's Peoples Temple, and Marshall Applewhite's Heaven's Gate.
Henry: The problem is that mostly when you put yourself in these set of circumstances, when have given up so much control, the idea that you were ever wrong about that is very embarrassing and very hard to come back from. When you have so fully subjugated yourself to someone else, in order to then believe that you were wrong the entire time means that you essentially gave up years of your life, and the shame and the grief associated with that causes these people to stick by these beliefs for a really long time. Because basically, in order for her to disbelieve that Asahara is real then she has to, then, also has to take into her mind that she went through the Bardo thing for no reason.
Marcus: Yeah, and not only that, but she had a family there, as well. So, not only is she wrong, but she has also wasted her childrens' lives, she put her children through all of this. The whole belief system is in shambles.
- In Fire Emblem: Three Houses, this is one of Edelgard's Fatal Flaws. She absolutely refuses to accept any outcome for the war for Fódlan other than her in complete control of the continent, even when she's cornered in her capital city, Byleth's forces are breathing right down her neck, and on Azure Moon, Dimitri is directly offering her a peaceful surrender. If she quits now, everything she sacrificed for her vision of a new Fódlan was for nothing.
- Aresh, the Arc Villain of Jack's loyalty mission in Mass Effect 2, uses a version of this to explain why he wants to restart the Pragia facility the people running it did such horrible things to everyone there, including him, that they must have been pursuing some greater purpose, and its near-destruction during a riot means that all the pain that happened there was for nothing. Jack, meanwhile, is understandably scornful of the idea that the suffering caused at Pragia meant anything more profound than "the people running this place need to die".
- Right before the beginning of Red Dead Redemption 2, the van der Linde gang steals $150,000 (worth a little north of $4 million in today's dollar) off of a banking ferry. In their hasty retreat, the leader Dutch has to stash the take. The heist was supposed to their One Last Job as it was big enough for all two dozen of them to retire to normal lives. However, Dutch spends the rest of the main story of the game pouring more and more money into replacing the take which only further gets the law on their tail as well. Even though they have the money they need just sitting there, they just need to be patient. The more logical decision would have been to have the gang keep up operations as normal for a year or two and then have him go back to get the money or hire someone else to do it once the trail's gone cold.
- At the end of a "No Mercy" run (i.e. a "kill everyone in the game including and especially major characters" run) of Undertale, the Final Boss points out that you're pressing forward with your murdering spree not out of any sort of "good" or "evil" desire, but simply because you can, and because you can, you feel like you have to, even though there's no real benefit to persevering at this point. They also gladly point out that the best thing to do at this point is to seriously give up and do literally anything else. Because really, what do you personally have to gain from not only massacring the entire underground but then also destroying the entire world and selling your soul to reset the game at the cost of ruining all future good endings?
i always thought the anomaly was doing this cause they were unhappy. and when they got what they wanted, they would stop all this. and maybe all they needed was... i dunno. some good food, some bad laughs, some nice friends. but that's ridiculous, right? yeah, you're the type of person who won't EVER be happy. you'll keep consuming timelines over and over, until... well. hey. take it from me, kid. someday... you gotta learn when to QUIT. and that day's TODAY.
- This trope is what tragically amplifies the various misplaced Hero Complexes — specifically, Martin Walker and possibly John Konrad's — to catastrophic levels in Spec Ops: The Line. When the Damned 33rd failed in evacuating Dubai's civilians from encroaching sandstorms, trapping all of them together in the cut-off city, they somehow decided they had the moral authority to enforce martial law at gunpoint, resulting in various atrocities they felt compelled to continue, lest they invite further chaos and admit their actions were pointless. Martin Walker, when he arrives, falls into the same trap of thinking he has to "rescue everyone", is forced to kill in self defense, and by the end just winds up killing people left and right in the delusional hope that he can justify everything by killing some Final Boss. The game ultimately shows how easy good intentions cause bad results, and how people will keep persisting on a course of action rather than admit they are the problem making everything worse.
"None of this would have happened if you just stopped."
- Epithet Erased: When Molly questions why Mera, whose epithet leaves her in constant pain, doesn't just have somebody use the amulet to take it away, Mera remarks that if she does that, the past decade of training she put herself through in order to reach her current level of power would be All for Nothing.
- Locus from Red vs. Blue. In his mind he has to keep following orders because admitting he has a choice now would mean admitting he had a choice in all his previous actions, and he can't face that.
- An Oglaf comic has a group of villagers decide to take a poorly built ship to war rather than cut their losses and have the months of hard work spent on building it be wasted. It doesn't end well for them.
Viking: Seriously, how does a boat just catch fire all by itself?
- The Order of the Stick's Redcloak suffers from this, as expressed in Start of Darkness; It's not that he believes in the Plan as much he believes that if he gives it up, it'll make all of the horrible things he's done worthless, in spite of being told from both his brother and Xykon himself what an empty excuse this is. Also, he continues to support Xykon despite being entirely too familiar with the lich's Bad Boss habits and knowing that completing the Plan with Xykon will not work out in his favor, because he feels too invested to quit and find some other, saner arcane spellcaster to work with instead.
- In The Inexplicable Adventures of Bob!, the protagonist explains to recurring villain Fructose Riboflavinnote that he's chasing a sunk cost, and that it likely feels like giving up on revenge would mean everything else was a waste. Fructose is both stricken by this realization, and really not amused.
- In Penny Arcade, the trope is discussed and namedropped in "Finisher," when Tycho explains why he completed Cyberpunk 2077 despite not liking the game, likening it to eating at a buffet that makes him sick because he already paid for it. Gabe asks if he's heard of the Sunk Cost Fallacy, and Tycho gives his less than accurate description of it.
"It means that you need to maintain harmful behaviors in perpetuity because you made a bad decision a long time ago, and now you deserve to be punished."
- When done badly, the policy doctrine of "too big to fail" can become this. One such example was the car maker British Leyland, which was bailed out by the British Government in 1968, but still failed to reverse its long-term decline. In spite of the British government trying to save Leyland, it was a lost cause.
- The concept of the missing stair works like this in social psychology. The term refers to how people in a social group who engage in bad behavior — abuse, lying, backstabbing, self-destruction, or other behavior that has to be "managed" somehow — yet are allowed to continue to act that way because everyone else would rather work around the missing stair than deal with them. The sunk cost comes in when the others in the group continue to allow this long after they should have removed the missing stair, because that would be admitting that they wasted time trying to deal with someone who was just making things worse. So they allow it to go on, unaddressed.
- The Jolly Roger Telephone Company is a web-based company that provides bots that are designed to waste telemarketer time by responding with pre-programmed routines and other time-wasters like "Yeah" and "uh huh" to make the caller think there's a real person on the other end of the line. In some cases, even after having ages of their time wasted with a bot, the callers will still keep going, thinking that they've already spent all this time already, so at this point they have to get something out of the call. They will grasp at any straw, anything at all the bot says that leads them to believe that the person on the other end of the line is actually interested in what they're pitching. But, of course, there is no person on the other end of the line, only a bot that can never give them what they want because it isn't programmed to do so.
Looks like this fallacy but is not:
- Any situation in which the choice to go with option A over option B is based purely on how much getting to the desired result through either option is expected to cost from now on, regardless of how much money, time or other resources have already been spent on option A.
- Remember, falling for the reverse is just as bad. If option B only costs $5, and option A costs $15, of which $14 has already been spent, option A is the better choice, no matter how cheated you feel over the difference. The choice here is still made based on how much both options will cost from where you are right now.
- When abandoning the current plan has costs that outweigh the benefit of switching to a better plan; for example, a penalty clause for cancellation of a contract that is higher than simply paying the contracted price until the contract runs out. Cell phones and cable/satellite services, health clubs, and auto leases often have these. For example, a cell phone contract is 2 years at $20.00 a month, and has a $250.00 cancellation penalty. If 12 months or fewer remain on the contract, it costs more to cancel than it does to simply continue paying the contracted amount until the contract expires. Another example would be, if in the contest above, the person had spent $11 rather than $8. Assuming victory was certain at $15, continuing to play would be a reasonable decision. Continuing to play costs $4 more, making $15 total. Stopping after spending $11 and simply buying the prize elsewhere for $5 costs $16 total — so why stop?
- Or if the contest itself is something fun enough to be worth at least $2 in its own right. This is how things like carnival prizes work.
- Or the contest is for charity, so even if you lose the money you spend is going to a good cause.
- The above examples simply point out that the Sunk Cost fallacy should account utility, not merely monetary value. Utility is an abstract and impossible to objectively measure concept, but it is usually converted to currency - as in, how much money would you trade something away for? Utility is also different from person to person. Let's return to the carnival game example, where the player had sunk $8 into the game, victory was sure at $15, and the prize was available for purchase for $5 at the store tomorrow. Would the carnival goer rather get the prize now, at the carnival, and give it to their child/sweetheart in this context? Is that difference worth the two additional dollars in cost? Is the warm-and-fuzzy feeling from the charitable donation worth it, especially when the carnival goer has the option to buy the doll for five dollars tomorrow and coldly cut the charity a check for two dollars at the same time? Is your entertainment worth two dollars to you? These questions have subjective answers, but the sunk cost fallacy hinges on their answers. As long as dollars are replaced with utility, the Sunk Cost fallacy is inescapable. Gain/loss of reputation, happiness at acquiring a good in a particular context, secondary effects (such as the charity example), and so on would all roll up into utility.
- It should be noted that in all these cases the sunk costs are still ignored, the utility of the prize is weighed against the $7 that still must be paid, not against the $8 that has already been sunk, etc.
- Utility also explains why sometimes our "irrational" choices are not always irrational at all. For example, suppose that in a small American town, a local drug dealer is taken by a customer for about $200 USD, so he goes to the customer's house and assaults him viciously. The possible consequences of the assault could send the dealer to jail for years - so it seems so foolhardy. An armchair economist would look at it and say, "Cut your losses; it's a sunk $200, and risking serious charges over it is stupid." But the drug dealer is part of the black market. He can't go to law enforcement to enforce his property rights over his stuff. A reputation for being easy to con or being unwilling to punish theft could make him easy prey for another criminal. Thus, when weighing the risks against $200 USD and his reputation, and when using the dealer's value system, the choice is no longer irrational. When accounting utility, always look at it from the decision-maker's values and preferences.
- Consider utility in the case where you have sunk $11 dollars out of $15 into something with a $5 prize which you could buy for $5 tomorrow. If you would look like a sucker if you let someone rip you off that badly, it may be entirely rational to break off the deal, buy the item from someone else, and burn the bridge to protect your reputation. Utility includes all things you value, not just the dollar amounts.
- The relationship between military situations and this fallacy is rarely clear-cut. If you are close to a valuable objective then continued effort may be justified. If this decision was based on one's own sunk costs, it was at best Right for the Wrong Reasons.
- The fundamental issue is that unlike gambling, in attrition warfare one has to pay the cost regardless of victory or defeat. This then leads to the above problem of committing more troops even when it doesn't help.
- This was long argued to be the main reason why Russia lost the Russo-Japanese War. By the end of the war Japan was winning militarily, but its economy was stretched to the breaking point, and their mobilization resources were completely depleted, as they had started drafting kids and geezers into the army, with the predictable outcome for troops quality and morale. Some analysts say that had Russia pushed just for a couple of months more, even in the wake of the horrific losses like Tsushima and Mukden, Japan would've sued for peace. On the other hand the Tsar's government had really lousy intelligence (as well as unrest on the home front that needed attention) and didn't know that, so they decided to cut their losses and sued first.
- In game theory, a war of attrition is more akin to a Dollar Auction than a Sunk Cost, though Sunk Cost is at the back of Dollar Auction. The Dollar Auction is a game where any number of bidders may bid for a dollar. However, the top two bidders must both pay. Suppose you've bid 90 cents and someone has just upped it to 91 cents. Now, it is rational for you to bid 92 cents; you are going to be down 90 cents if the other guy wins, and up eight cents if you win. Of course, it's then rational for him to bid 93 cents, and so on. Of course, in attrition warfare, all parties must pay.
- The game theory game most like a war of attrition is...war of attrition.
- When the possible return is so great compared to the possible loss that it is deemed a reasonable risk to take. That's gambling, not fallacious. This works better with non-cumulative risks (like Lotto); otherwise, see pot committed above.
- Many people often believe that cost overruns on defense projects are an example of this, but usually they are not. For example, while it is true that a new generation of stealth fighters or other extremely expensive stuff can drag on for decades and have cost overruns of 500% or more, it is usually because defense planners want the new system at almost any price. The other reason for cost overruns is what is sometimes called the oversight paradox: If a project costs too much, policy makers may kill the project, meaning that the defense contractor will lose everything they've spent on the project. To protect themselves from this, defense contractors will often rush through the R&D phase as quickly as possible, because a weapons system becomes much harder to cancel once it is in production—too many workers will get laid off, making it politically unpalatable. That means that bugs in the system have to be fixed only after the system is already in production, which is much more expensive, leading to cost overruns. When a weapons system is secret, the lack of oversight often means that the designers can take their time, avoiding problems once the system goes into production; the U-2 spy plane, to give a famous example, came in on time and under budget, thanks in no small part to the lack of Congressional oversight.
- In addition, even a new project would have similar cost overruns and problems that would arise. It's better the devil you know than the one you don't, and this is another reason why sometimes what seems like throwing good money after bad is really the best option.
- The Hubble Space Telescope is a good example of why additional costs after the fact aren't necessarily this trope. When the telescope was first deployed, there was a major flaw in the primary optical mirror; it has been ground to the wrong curve, making the images it sent back very blurry, and rendering the primary purpose of the telescope (clearer images outside Earth's atmosphere) mostly pointless. Some people quickly wrote off Hubble as a failure at that point, so when a mission to send up a new module to correct for the bad optics was announced, these people slammed NASA for throwing more money into a telescope they thought would never work properly. The fact was, NASA knew exactly what was needed to correct for the issue, thanks to documentation of the process used to grind the mirror, which was ground very precisely to the wrong shape. Long story short, the corrective module was sent up to (and installed in) the telescope, and afterwards, new images from Hubble were incredibly clear, as had been envisioned at the start of the project. The money spent to correct the optical issues (a relatively small amount compared to the overall cost of the telescope) proved to be money well-spent...and more to the point, the repair cost a fraction of the money that building a completely new telescope would have, for most of the same benefit (one of the telescope's original modules had to be removed for the corrective module to be installed). Hubble is still in service—and providing great imagery—as of 2016.
- Another common misuse of Sunk Cost Fallacy is when a company throws a lot of money at a failed or failing project. Sometimes, a failure is mitigated enough to make the decision rational. This can lead to a company throwing money after a project that is failing - the amateur economists will decry sunk costs, while the company realizes they can at least mitigate their losses by releasing a mediocre product (or rarely, as with the Hubble, an actual good product, even if not what was orignally hoped for) instead of a true turd.
- And yet more thought about utility; the company should put a price on damage to their brand and consumer backlash as well. If the consumer and fans of that product are pissed, it can kill a profitable brand.
- An extreme form of this is to consider the possibility of a Franchise Killer, where the product is so bad that trashes a once profitable brand so savagely, that brand gets shelved for decades or even for good. Sure, releasing the theatrical dud might recover some of the money spent making it, but if it kills the franchise, it might have been better just to suck up the losses. For notable examples, see the Franchise Killer page.
- Let's put numbers on an example. Suppose a company expects to ship five million units of a video game making a $20 USD revenue per unit, for a nice $100 M in revenue from sales. That sounds pretty sweet. Now they've run their dev cycle, spent $80 M, and have a real piece of junk on their hands. Sales projections are 1 million units sold and losing the good will of enough fans to cost them 500k sales from their next game. Ouch. Release the game now, and they bring in $20 million in revenue, have spent $80 million in development, and will lose $10 million from their next game. That's a loss of $70 million, net; they'd be lucky to survive that. So they sink another $20 million polishing their game. It's now So Okay, It's Average, sells 3 million copies, and their fans write it off as an uninspired sequel but don't actively hate it. They haul in $60 million as revenues, lose $100 million in costs, and don't wreck their brand, for a net loss of $40 million. It might sink the company, but that's still $30 million better than before they threw more money at a failing project.
- If a course of action has a large, unavoidable startup cost, but slowly pays for itself over time, then continuing along that same course is not this fallacy, if one can be reasonably certain that it will continue to pay out at least long enough to pay off the startup costs. A good example is the airliner business; designing a new airliner, putting together an assembly line for it, trying to sell it to people when the first deliveries are still years in the future, etc., is extremely expensive, but, if you can sell enough of them, it's still worth it. When it does become this fallacy is if it enters Development Hell and the development costs start spiraling out of control and/or the market suddenly dries up before development has finished (on the other hand, losing millions on a project because the market dries up while it's in production or because its reputation is tainted by something that could not realistically have been predicted while it was still under development - both of which have happened to numerous airliner models - isn't the sunk cost fallacy; it's merely bad luck).
- Being statistically "pot-committed" in poker is not this fallacy: sometimes, the pot is so big relative to the cost of calling that the strategically correct choice is to call even when your odds are slim (but non-zero). note This is more likely to happen in limit games; in non-limit games, players that already have a strong hand are likely to size their bets such that it no longer makes mathematical sense for players on long-shot draws to call. It is part of the strategy of tournament poker to recognize situations where one's stack is low enough with respect to the size the pot is likely to reach that it is easy to become pot-committed. At that point, one is advised to either give up before becoming pot-committed, or shove all-in early so as to increase one's odds of winning by making it more likely that the other player(s) will fold. It is a further part of the strategy to recognize when other players are in that situation and not enter pots with them if unprepared to play for all their chips.
- An "ideal" option that is not economically viable in your particular situation is just that: not viable, and, therefore, should not factor into the equation. Going back to the car example, stringing by on ad-hoc repairs may be the only viable alternative if the owner just doesn't have the money to buy a new car or the credit to get a loan that would cost less than the repair costs for the period of that loan (or if other means of getting around, e.g. public transportation, biking, or walking, are also not on the table). Previous repair costs are sunk, but it's also no use in bemoaning what you could have afforded if you hadn't paid for those; all that matters is what you can afford now.
- This is why the insurance business exists; sure, the total cost of all those monthly premiums is, on average, greater than the total payout you get from the insurance company (this is why insurance companies are able to make a profit), but it's better than having to suddenly pay a large amount of money all at once due to something unexpected (like a tree through the roof, car crash, heart attack, rampaging fire monster, etc.).
- Repairing something when buying new would cost less can be a conscious decision to save resources and avoid waste.
- Repairing something when either time or limited industrial capability make retaining the object more necessary over saving money. A great example is when HMS Belfast, that warship on the Thames, was damaged by a mine during the second world war, it was deemed that the fastest repair solution would be more expensive than a new cruiser. That would have taken three years and dry dock space Britain didn't have however.