sunk

Sunk Costs and Loss Aversion

Sunk costs are usually defined as previously incurred costs that are not recoverable and should not be taken into account in decision making. Here is a slightly modified example of a sunk cost from Jerold Zimmerman’s “Accounting for Decision Making and Control” (Irwin McGraw-Hill):

Example. Abadabba Berman, the comptroller of the Schultz Cement Shoe Company, has [...]

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Sunk Costs: Assets With Little Or No Market Value

The text book definition of “sunk costs” reads something like this:

Sunk Costs: Costs that were incurred in the past that cannot be recovered and thus are irrelevant for decision making.

Well most costs are incurred in the past so that part of the definition is not all that helpful. More central is the idea of recoverability. [...]

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