My wife and I are having a disagreement as to what it means. She says that it means the cost of something you purchased some time ago, and had you not purchased it the money would be gone anyway.
Basically, 3 years ago we decided to purchase something to hold onto and sell later on when the value goes up. She says that the purchase price can be considered as profit since it was so long ago. I disagreed. Anyway, she calls it “sunk cost”.
In: 59
She’s wrong.
Those big outlet malls run on sunk cost. After seeing the advertisements about good deals, you decide to take that hour trip to the outlet mall. So you pack up the family and drive. You get there and you see that there’s not really anything there you want. But you already made the hour trip (plus hour back), so you buy something anyway.
Your wasted trip, the time, gas, and trouble, is the sunk cost. It’s time and money you spent on purchases at the outlet mall that you’re not getting back. You consider that you’re losing money if you don’t buy anything, which encourages you to needlessly buy things to (in your mind) recover some of the sunk cost. Or you may buy more than you intended to in order to spread the sunk cost across more items.
But if you realize what sunk cost is, you just return home without buying anything, admitting you wasted that money without wasting any more to “make up for it.”
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