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What are sunk costs in decision making? Explain.
What are sunk costs in decision making? Explain.
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Sunk costs refer to costs that have already been incurred and cannot be recovered regardless of the decision made In decisionmaking contexts sunk costs are irrelevant because they represent expenditures that have already been made and cannot be changed no matter what decision is taken in the future Heres a more detailed explanation Irrelevance in Decision Making Sunk costs should not be considered when making decisions about future actions because they are nonrecoverable Whether you proceed with a project or abandon it the sunk costs remain the same Therefore decisions should be based on prospective costs and benefits rather than past expenditures Avoiding the Sunk Cost Fallacy Failing to recognize sunk costs can lead to what is known as the sunk cost ...
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Managerial Economics Foundations of Business Analysis and Strategy
Authors: Christopher Thomas, S. Charles Maurice
11th edition
978-0078021718
