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What are Sunk Costs?

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A sunk cost is a business or investment expenditure that has already been made that can't be recovered. Sunk costs are an important concept in behavioral economics and decision making. In many situations, it makes no logical sense for sunk costs to affect current decisions and strategy. Examples of sunk costs influencing decisions include escalations of a bad investment or failing strategy:


A firm continues to invest in a project that's failing out of a desperate desire to recoup losses. The project continues to worsen as spending to recover sunken costs continues.


An investor escalates a failing investment in order to recover losses, purchasing investments that they would have avoided if they didn't have an existing loss.

Recognition of Failure

A company invests in a new technology designed to improve business processes. By the companies own metrics, the technology makes processes less efficient resulting in operational costs and declining revenue. The company continues to use the technology for fear of recognizing the failed investment in technology.
Find more examples of sunk costs here.
Overview: Sunk Costs
A past cost that has been committed and can't be recovered.
Preventing sunk costs from influencing decision making may improve the quality of decisions.
Related Concepts

Business Costs

This is the complete list of articles we have written about business costs.
Applied Cost
Business Equipment
Capacity Cost
Capital Improvement
Carrying Costs
Closing Costs
Cost Of Capital
Cost Of Revenue
Cost Of Living
Direct Cost
Distress Cost
Fixed Costs
Friction Cost
Employee Costs
Holding Costs
Intangible Cost
Marginal Cost
Operating Cost
Operating Expenses
Legacy Costs
Outlay Cost
Lifetime Cost
Overhead Costs
Menu Costs
Relevant Cost
Normal Costs
Sunk Costs
Tangible Cost
Operational Costs
Travel Expenses
Unit Cost
Opportunity Cost
Variable Costs
Prospective Cost
Semi Variable Cost
Step Costs
Switching Costs
Transaction Costs
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