Sunk Cost Fallacy
One trap managers should be aware of when it comes to sunk costs is the sunk cost fallacy. The Sunk Cost Fallacy describes our tendency to follow through on an endeavor if we have already invested time, effort, or money into it, whether or not the current costs outweigh the benefits.
Economists tell us we should avoid falling into this trap in the decision-making process that justifies a bad decision based on previously incurred costs that no longer bear relevance to the decision at hand.
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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.
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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
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