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”.
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Sunk cost is when you stick with an investment that’s no good. It’s related to the phrase “throwing good money after bad”
Suppose you decide to buy an old car so you can fix it up to sell it for a profit. You spend **x** to buy it and **y** to start fixing it. But you find it’s going to cost even more to really fix it.
If you don’t finish fixing it, you’ll lose **x** and **y**. That’s bad.
But suppose you will lose even more than that if you spend more to fix it. You should be rational and just walk away. You wouldn’t spend that much on fixing a junker, but the fact that you’ve already spent all that money makes most people a little irrational. That’s sunk costs.
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