Sunk cost意思

"Sunk cost" is an economic term that refers to a cost that has already been incurred and cannot be recovered, regardless of whether the ongoing project is successful or not. These costs are considered to be "sunk" because they are not relevant to the decision of whether to continue or abandon a project, as they cannot be changed by any current or future decision.

For example, if a company invests $1 million in building a factory, and then decides to abandon the project before the factory starts operating, the $1 million investment is a sunk cost. The company cannot recover the $1 million by deciding not to continue with the project, so the decision to proceed or not should not be based on the sunk cost. Instead, the company should consider the future costs and benefits of the project.

Sunk costs are a common concept in decision-making, and they are often used in the context of avoiding the sunk cost fallacy, which is the error of making decisions based on the desire to justify or rationalize past investments, rather than on the merits of the current situation.