Question

Please give an example of a sunk cost that you have made towards your education, and how that affects your investment decisions going forward.

Answer 1

Sunk cost is a type of fixed cost that is undertaken by an individual. It refers to the money which has already been spent and there is no way for us to recover it anymore.

In terms of education, a type of sunk cost can be thought of, that is, when we buy a laptop for a child for strictly education purpose, this is the sunk cost that is undertaken. The money spent to a buy a laptop is already undertaken and it cannot be recoverd in any way later when the child finds no use of the laptop.

Investment decision is a kind of sunk cost asa amount once invested cannot be recovered. A person thinks of investing only when he/she is sure about a return of that investment. So, the cost associated with investment decision is very important. If the individual feels that the cost is more that return then they won't investment as it is not profitable to them and vice versa.