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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 ...
Despite the fact that sunk costs should be ignored when making future decisions, people sometimes make the mistake of thinking sunk cost matters. This is sunk cost fallacy. Example: Steven bought a game for $100, but when he started to play it, he found it was boring rather than interesting.
Escalation of commitment, irrational escalation, or sunk cost fallacy, where people justify increased investment in a decision, based on the cumulative prior investment, despite new evidence suggesting that the decision was probably wrong. G. I. Joe fallacy, the tendency to think that knowing about cognitive bias is enough to overcome it. [65]
The Sunk Cost fallacy is a biased committed when individuals base their decisions to stop or continue a course of action solely on past irrecoverable invested costs (i.e., monetary or time-related). Individuals' susceptibility to the Sunk Cost fallacy has been justified as the need to try to avoid appearing wasteful, to avoid appearing ...
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 ...
To mitigate cognitive biases, such as the sunk-cost bias, educators must raise students' awareness of these common judgment errors. In this article, the author proposes a classroom activity that actively engages students and allows them to identify this bias in their own judgments.
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 ...
That would make the market more contestable. Sunk costs are those costs that cannot be recovered after a firm shuts down. For example, if a new firm enters the steel industry, the entrant needs to buy new machinery. If, for any reason, the new firm cannot cope with the competition of the incumbent firm, it will plan to move out of the market.