Sunk cost meaning and sunk cost fallacy relationships

What is sunk cost meaning?

Sunk cost definition

Sunk cost meaning: The cost that you have incurred already and cannot be recovered in the present or future. These costs are not considered when making the business decisions.

As a sunk cost example, you have bought a machine for the business in the past. But you cannot get any purpose from this machine now and even you cannot sell this machine.

Sunk costs are not included in the relevant cost of a business. Relevant cost means any cost that is relevant to the decision-making process of the business. That means, business organizations make decisions, only consider the relevant costs.

Sunk cost vs fixed cost

Sunk cost is a type of fixed cost (But all the fixed costs are not sunk cost). The difference between the fixed cost and sunk cost is that the sunk cost cannot be recovered while some fixed costs can be recovered and some fixed costs cannot be recovered.

What is sunk cost fallacy?

Sunk cost meaning is cost that you have incurred already and cannot be recovered in the present or future.

Sunk cost fallacy meaning is the individuals stick with the irrelevant decisions since they invested their time, money, and efforts in these irrelevant decisions. Because people can’t get back the resources that they invested in. They are trying to get the worth of the money by further utilizing resources. Sunk cost fallacy is a useless feeling that loss of money, effort, and time of the people.

Sunk cost fallacy examples

I will give some examples of sunk cost fallacy as follows.

Sunk cost fallacy examples 1 – A business company has conducted a $2 million project to introduce a new product to the market for two years. At the end of two years, this project was not successful. So, this is a sunk cost. But the particular business organization further invests their time, money, and efforts for this project. Since a particular organization has invested more resources in this project, they are stick on this decision. This is the sunk cost fallacy.

Sunk cost fallacy examples 2 – A person has studied civil engineering for two years. Now this person has identified that civil engineering is not his field. But he has invested a considerable amount of money, time, and effort in the civil engineering degree program. So, he sticks to be graduated and invests more resources.

Beyond the above-mentioned situations, when people may stick to sunk cost fallacy when they engage in the wrong relationships. This is called “sunk cost fallacy relationships”. Let’s consider what is the sunk cost fallacy relationship.

Sunk cost fallacy relationships

At the end of the relationship, many people feel an overwhelming loss. Because they have loss a considerable amount of money, energy, time, memories, feelings, and so on. So, some couples decide to be together although it is not healthier for them. Since they have used more resources, they need to further be together by collecting more memories and time although they do not match each other. This is not a rational decision and this is called as a sunk cost fallacy relationship. A sunk cost fallacy relationship can keep away you from the most suitable future relationship. It may difficult to remove yourself from a sunk cost fallacy relationship, but it will be the healthiest decision for you.

Effects of sunk cost fallacy

The sunk cost fallacy special (sunk cost fallacy relationships also) can lost the best interest of a person. Because he or she is in a useless decision and for that he or she do an additional investment. As mentioned above, a person has studied civil engineering for two years. Now this person has identified that civil engineering is not his field. But he has invested a considerable amount of money, time, and effort in the civil engineering degree program. So, he sticks to be graduated and invests more resources. But this student does not genuinely passionate about civil engineering.

As result of sunk cost fallacy, a business organization does not only loss their income and profits but also it loss customer base. As an example, a business organization maintains a physical retail store to sell its products. Up to now this business organization has invested a lot of money in this physical retail store. But consumers are more interested in buying goods online. Physical retail is not useful now. But the company try to get customers to the physical store by investing more money. Because the company is in a sunk cost fallacy. This will loss not only the income of the company but also loss the customer base. Because customers go to the other companies that provide online services.

A sunk cost fallacy relationship can keep away you from the most suitable future relationship. It loss you a considerable amount of money, energy, time, memories, feelings, and so on.