Difference between revisions of "Sunk costs"
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| − | Sunk cost is a term in [[accountancy]]. It refers to monies which have already been paid and are unrecoverable. It is an important principle that sunk costs must ignored in decision-making. For example, suppose $1 | + | '''Sunk cost''' is a term in [[accountancy]]. It refers to monies which have already been paid and are unrecoverable. It is an important principle of rational decision-making that sunk costs must ignored in decision-making. For example, suppose $1 million has already been spent on a project that is being being considered for cancellation. If the project is stopped or abandoned that money will have been wasted. However, that fact should ''not'' be considered when deciding whether or not to stop the project, as that money is already gone. |
Revision as of 22:21, May 8, 2007
Sunk cost is a term in accountancy. It refers to monies which have already been paid and are unrecoverable. It is an important principle of rational decision-making that sunk costs must ignored in decision-making. For example, suppose $1 million has already been spent on a project that is being being considered for cancellation. If the project is stopped or abandoned that money will have been wasted. However, that fact should not be considered when deciding whether or not to stop the project, as that money is already gone.