A sunk cost is a cost that has already been incurred and cannot be recovered, so standard economic theory holds that a rational decision maker should ignore it entirely when choosing what to do next and weigh only future costs and benefits. The sunk cost fallacy is the well documented tendency of people and organizations to keep funding a failing project because of what has already been spent on it, letting an unrecoverable past expense influence a forward looking decision it has no bearing on. The pattern is one of behavioral economics' most replicated findings and a standard explanation for why individuals and firms alike persist in losing ventures.
Facts
SignificanceSunk costs often influence people's decisions in practice even though standard economic theory says only prospective costs and benefits should matter, making the sunk cost fallacy one of behavioral economics' most replicated findings and a standard explanation for why individuals and firms persist in losing ventures. 1 No single economist is credited with proposing the sunk-cost principle; it is presented in the sources as a standard result of classical and neoclassical decision theory, so proposed-by and origin-year are left unwritten rather than naming one arbitrarily. Connections
Sources
1. Wikipedia
Wikimedia FoundationSunk cost, Fallacy effect section
Sunk costs often influence people's decisions, with people believing that investments (i.e., sunk costs) justify further expenditures.
Associated With School: Behavioral Economics, Sunk cost
This behavior, allowing past expenses to influence future decisions, is one of behavioral economics' most replicated findings.
View the Source Sunk cost (Wikipedia)
Sunk costQuote, Sunk cost
A sunk cost (also known as retrospective cost)
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