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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 ...
Analyzing from the composition of costs, sunk costs can be either fixed costs or variable costs. When a company abandons a certain component or stops processing a certain product, the sunk cost usually includes fixed costs such as rent for equipment and wages, but it also includes variable costs due to changes in time or materials. Usually ...
High costs of ending a project or changing its course, potential financial gain upon completion, and extensive structure can factor in to escalation of commitment, making it difficult to walk away from the project. Preventing future monetary loss, potential savings, and having clearly available alternatives can allow for avoidance of the behavior.
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.
Fixed and Sunk Costs Revisited. Wang, X. Henry; Yang, Bill Z. Journal of Economic Education, v32 n2 p178-85 Spr 2001. Attempts to clarify the concepts of, and the link between, fixed costs and sunk costs. Argues that the root of confusion is the inconsistency in defining the term fixed costs. Consistently defines fixed and sunk costs, and ...
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 ...
The sunk-cost problem helps explain why it was so hard to end that war. It is worth considering this problem as we reflect on current wars. The sunk-cost fallacy applies in our thinking about the ...
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.
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