sunk costs


Also found in: Medical.

Sunk costs

Costs that have been incurred and cannot be reversed.

Sunk Costs

Money that has already been spent. Sunk costs are important because a company may use, for example, an old piece of equipment to make a new product. In this case, sunk costs are positive because no further investment is required. On the other hand, a sunk cost may be negative; for example, that old piece of equipment may break down after its warranty has expired. This means that the owner will not recover the costs no matter what happens.

sunk costs

any expenditure on durable and specific FACTOR INPUTS, such as plant and machinery, that cannot be used for other purposes or easily be resold. Such sunk costs have no affect on MARGINAL COSTS and do not influence short-term output decisions.

The presence of sunk costs through investment in TRANSACTION-specific assets can affect the relative bargaining power of parties to a CONTRACT. See ASSET SPECIFICITY. See also OPPORTUNITY COST, BARRIERS TO EXIT.

References in periodicals archive ?
In other words the 'sunk cost fallacy' is trying to recover an investment that's already gone.
It's the fallacy of sunk costs that gets a gambler spiralling to the absolute bottom.
Summary: TEHRAN (FNA)- New research has shown that mice, rats, and humans all commit the sunk cost fallacy.
But it is also a simple basic fact of the human psyche that individuals receive psychic pain from sunk costs (Arkes and Blumer 1985).
This phenomena, known as the sunk cost effect, is exhibited when a previous investment of time, effort, or money increases the likelihood of continued investment (Arkes and Blumer 1985).
The Papua New Guinea government has a right to acquire up to a 30% interest in the project at any time up to the date of granting the mining lease at a price equal to the sunk costs at the date of acquisition.
Fourth, a consultation may lead to preventive changes--quitting smoking, behaviour modification, stopping unnecessary medications--that are positive investments, not sunk costs. Co-pays that inhibit preventive consultations diminish the chance of a healthy life.
Although it is a market where the buyer exerts significant bargaining power, as there are multiple players offering solutions at competitive prices, yet it has low entry barriers for new players due to very limited government control and less initial sunk costs to operate.
values of trade costs when IIT is feasible, provided the scale of the sunk costs is low enough.
In one online study, American participants reported about how much they typically focus on the present moment, and also read 10 sunk-cost scenarios--such as whether to attend a music festival that had been paid for when illness and bad weather made enjoyment unlikely--and then reported how much they would let go of sunk costs in each of them.
In one online study, participants reported about how much they typically focus on the present moment and also read 10 sunk-cost and then reported how much they would let go of sunk costs in each of them.
In other words, sunk costs are irrelevant because they do not contain information about the future effects of the decision.