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Sunk cost. In economics and business decision-making, a sunk cost (also known as retrospective cost) is a cost that has already been incurred and cannot be recovered. [1] [2] Sunk costs are contrasted with prospective costs, which are future costs that may be avoided if action is taken. [3] In other words, a sunk cost is a sum paid in the past ...
The effect of sunk costs is often seen escalating commitment. When the amount of investment is greater and can not be recovered, the desire to avoid complete loss of those resources and keeping with impression management prompts continued investment over pulling out. [ 7 ]
From the traceability source of costs, sunk costs can be direct costs or indirect costs. If the sunk cost can be summarized as a single component, it is a direct cost; if it is caused by several products or departments, it is an indirect cost. Analyzing from the composition of costs, sunk costs can be either fixed costs or variable costs.
Alamy A few weeks ago, I had tickets to an NFL game. It was freezing that day, and all my friends backed out. But I didn't want to waste the $70 I'd spent on the ticket. So I went to the game ...
Alamy There are some economic terms most of us know and understand, such as supply and demand. And there are other terms we will probably never even run across, like implicit logrolling and a ...
A loss of $0.05 is perceived with a much greater utility loss than the utility increase of a comparable gain. Loss aversion is a psychological and economic concept, [1] which refers to how outcomes are interpreted as gains and losses where losses are subject to more sensitivity in people's responses compared to equivalent gains acquired. [2]
Loss aversion, where the perceived disutility of giving up an object is greater than the utility associated with acquiring it. [73] (see also Sunk cost fallacy) Pseudocertainty effect, the tendency to make risk-averse choices if the expected outcome is positive, but make risk-seeking choices to avoid negative outcomes. [74]
Some costs that require firm to comply in order to exit market. For example, remediation costs due to environmental regulations. High fixed exit costs. "can include loans, which the company pays back over time, property costs, vehicle costs or any settlement packages for investors or employees." Indirect opportunity costs of exit: Sunk costs.