Question

What is a sunk cost? Can you explain what the sunk cost fallacy is using some examples from real life?

Answer 1

Sunk costs are costs that cannot be recovered and are incurred due to past decisions. They are not included while making any decision.

For eg., You buy a car and replace its battery after some year. It costs you $ 50. This $50 is sunk cost which cannot be recovered and have no significance when you sell the car.

Sunk cost fallacy is the idea that a company has invested a lot of money in a project. Now they will like to continue the project even if it is not the best thing to do.

For eg. You bought a match ticket a week ago and now you got fever. If you didn't have the ticket, you will not go but because you have the ticket you will go.