What is a Sunk Cost?
A sunk cost refers to a cost that has already occurred and has no potential for recovery in the future. Given that sunk costs have already occurred, the cost will remain the same regardless of the outcome of a decision, and so they should not be considered in capital budgeting.
It is easy to get hung up on sunk costs, especially when they are explicit costs. Explicit costs are direct payments made to others in the course of running a business, such as wages, rent, and, materials.
- Explicit costs which have already been incurred are sunk and are irrelevant to future decision-making.
- Explicit cost
s which will occur in the future, however, are relevant to business decisions as they will be direct costs to the company that could be avoided.
39
596 reads
CURATED FROM
IDEAS CURATED BY
Sunk Costs are explicit and appear on financial statements so it is understandable why these costs are honed in on. Opportunity Costs are implicit and unseen, so they are often overlooked.
“
The idea is part of this collection:
Learn more about moneyandinvestments with this collection
The impact of opportunity cost on personal and professional life
Evaluating the benefits and drawbacks of different choices
Understanding the concept of opportunity cost
Related collections
Similar ideas to What is a Sunk Cost?
The sunk cost fallacy
It plays on this tendency of ours to emphasize loss over gain.
The term sunk cost refers to any cost that has been paid already and cannot be recovered. The reason we can't ignore the cost, even though it's already been paid, is that we're wired to feel loss far more strongly than g...
The Sunk Cost Fallacy In Business
When running a company, many entrepreneurs fail to quit, change direction or pivot their business model, unable to admit that what they were doing isn’t working, or that they were plain wrong in their decisions.
The Sunk Cost Fallacy is the primary reason for this gross error in ju...
Sunk cost tactics
This is based on the assumption that the more a negotiator has invested in trying to reach an agreement, the less willing they will be to abandon the negotiation.
Tip for the negotiator: Write-off the previous investment. It then has no significant influence on current decisio...
Read & Learn
20x Faster
without
deepstash
with
deepstash
with
deepstash
Personalized microlearning
—
100+ Learning Journeys
—
Access to 200,000+ ideas
—
Access to the mobile app
—
Unlimited idea saving
—
—
Unlimited history
—
—
Unlimited listening to ideas
—
—
Downloading & offline access
—
—
Supercharge your mind with one idea per day
Enter your email and spend 1 minute every day to learn something new.
I agree to receive email updates