Question

Economists can often be heard saying “sunk costs are sunk.” What do they generally mean by...

Economists can often be heard saying “sunk costs are sunk.” What do they generally mean by this statement? Come up with a real world example where this statement has applied—it can be a decision that you made or something you saw in the news, etc. (2 pts)

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Answer #1

By the statement "sunk cost are sunk", economists refer to a cost which once incurred can't be recovered by any means(the word 'sunk' states that it is gone forever). So, when making ongoing investment decisions, one shouldn't consider the sunk cost as it is sunk and can't be recovered.

Example- I decided to rent my ground floor rooms and started furnishing it. I did everything(reconstructed the walls,painting the walls,making some new partitions etc) to make the room look attractive. By doing this, I spent a lot of money and when I handed it over to my new tenant I realized all of my costs were 'sunk' as I can't get it back.

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