Sunk Cost

A cost that has already been incurred. By virtue of their being 'sunk', costs of this kind are not opportunity costs at all as they represent no current or prospective sacrifice that is necessarily entailed in a decision. This does not necessarily mean that they are irrelevant to current decision making, however, even though standard (normative) theory holds them to be of interest only insofar as the past may be thought to hold useful lessons for the future, not least because the idea of managerial commitment, especially to major investment projects, may be an important element in the future credibility of the people who make major decisions of that sort. It is a common experience

Supply Assurance 333

that sunk costs often do weigh heavily with firms and households and it seems preferable to explore the possibility that this ought not to be dismissed as 'irrational' without exploration of possible reasons for its actually being rational.

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