What exactly is “Sunk Cost”?

Question

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

Answer 1

I want to learn to play electric guitar so I buy an expensive guitar and an amplifier.

But I don’t practice enough to get good.

So I pay for lessons.

But I still don’t practice enough, so I don’t improve much.

Then I think “If I buy an even better guitar, I’ll sound better and want to practice more.”

But I don’t.

Then I say “maybe I should play drums” so I buy those.

But I don’t practice.

So I pay for lessons.

And I don’t practice.

It’s a cycle of chasing something by throwing money at it when I can’t accept that it’s time to give up.