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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If you own a Playstation and one of you accidentally buys an xbox game. That’s the sunk cost as it’s of no use to you and even if you were to resell the game, you’re selling it at a loss (because it’s now preowned).
The fallacy that usually goes with it is now that you had an xbox game and you don’t want that money to go to waste because that’s wasteful; you then buy an xbox to play that game rather than cutting your losses. You’re losing more money to cover the loss.
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