Sunk cost fallacy

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Project appraisal.

The sunk cost fallacy is the mistaken belief that already-committed costs ('sunk costs') are relevant for financial decision making.

In reality it is only the opportunity costs of resources that are relevant.

Consequences of the sunk cost fallacy include:

  • Continuing with projects that should be discontinued, and "throwing good money after bad";
  • Failure to close out loss-making market positions.

See also