Sunk Cost Fallacy

Meaning

• Sunk costs have already been incurred and cannot be recovered by any means
• Opportunity costs represent forgone returns of alternative opportunities

Implicit or Explicit

• Sunk costs are explicit as they are the resu...

It is important to note that while all sunk costs are fixed costs, not all fixed costs are sunk costs. 

Sunk costs are, by definition, those which cannot be recovered by any means. Some previously incurred costs can be sold on for their purchase price and therefore are not ...

The main challenge with opportunity costs is that they are hard to accurately calculate. Returns on investments are often estimated rather than hard-set figures.

It is also not always easy to define non-monetary factors like risk, time, skills, or effort. This is not to sa...

An Opportunity Cost is the loss of other alternatives when one option is chosen or no action is taken. Opportunity costs are unseen, not included in financial reports, and can often be forgotten about in capital budgeting. Part of the reason opportunity costs are unseen is becaus...

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.